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Los Angeles Tax Law Blog

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.

Tax audit risk dropping fasting for higher earners

The percentage of tax payers who get audited by the IRS is low and seems to be getting lower by the day. But as many good tax attorneys and financial advisors often tell clients, there’s good news and bad news. The lower audit rate is no exception.

Take a moment to feel the pleasure of knowing that your chances of being audited are not high. Then, when you’re ready, prepare for the worst.

The ABC Test: Employee or independent contractor?

With the rise of the 21st-century gig economy, the line between an independent contractor and an employee is more blurred than ever. A high-profile 2018 court decision involving app-based companies like Uber, Lyft and Postmates limited the scope of whom employers could classify as contractors. The California Supreme Court’s decision was further bolstered by a September 2019 bill signed by Gov. Gavin Newsom limiting companies’ use of contractors.

 

Reasons the IRS will audit you

To put it succinctly, The IRS audits people to double-check their numbers and make sure their returns don’t show any inconsistencies. An audit is not a sinister move by the IRS to blackball you, but some people do try to purposefully cheat the system and that is when real problems arise.

The overarching reason behind tax audits, is for the IRS to minimize the “tax gap” – the difference between the money the IRS is owed and what it receives. There are random tax audits, but most often, they IRS will zone in on returns that show discrepancies and skeptical activity.

The significant distinction between employee and contractor

Most entrepreneurs understand the complexities of running a company. They have to balance expenses, manage employees, craft products and establish a strong customer base. Along with that, they need to make sure all the details are perfectly executed.

One detail that some employers miss is employee classification on taxes. It’s a small detail that leads to significant consequences from the IRS and the Department of Labor. Luckily, there are ways to ensure your staff members are employees or independent contractors.

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