I noticed a surviving spouse taking over the payments recently. The spouses 1099-R didn’t show basis because the Gross distribution equaled the Taxable distribution. It seems we should either convince PERA to change how it does things, or find out what the remaining basis is and figure the basis recovered each your ourselves.

In looking into this issue if found this clear as mud support for my position:   Basis Cornell who has this information is thanked. The problem with trying to understand it is with the IRS, who wrote what Cornall reproduces, who often fails to write in simple terms for normal people. I can also write that carrying forward and using this uncovered basis makes sense to an accountant because it balances the books. Because the money that was once taxed, is not taxed again.

“the deduction…   …shall be allowed to the person entitled to such payments for the taxable year in which such payments are received.” – The IRS

1. Professional, and Useful Website

You would be surprised how much you can learn about a business using the Internet. Before hiring a tax resolution company, you should always spend a few minutes reviewing their website. Look for informative testimonials and information about any chambers of commerce, or professional organizations the company is aligned with.

In addition to information about the business on their website, you should also see if they offer information on topics related to tax debt resolution. If the company employs experts knowledgeable about the various IRS tax resolution programs, then the company should have useful information such as informative articles, a glossary of tax related keywords, newsletters and a blog (that is updated regularly) for you to review.

2. Successful Track Record

A quality tax resolution company will be able to provide evidence of a successful track record of resolving delinquent accounts with the IRS. If you cannot find information on a company’s website about recent resolutions that is has achieved for its clients, then you should consider asking a representative of the company for this information. If you do speak with a tax resolution company, you should also inquire as to whether the company has experience in resolving cases similar to yours.

3. Friendly, Helpful Representatives

When you speak with a representative from a tax resolution company, they should be friendly and helpful. If the representative is rude or uses fear tactics to try to convince you to retain his company’s services, then you should consider calling another company.

4. Easy-to-Understand Fee Structures

Before you hire a tax resolution company, you should find out exactly how much they charge for their services. Some companies use complicated price structures, or rely on hidden costs in order to charge you extra fees once you retain their services. Do not hire a tax resolution company until you fully understand exactly how much money you will be required to pay the company. If the cost seems unreasonably high or unreasonably low, then you should consider seeking quotes from other companies.

5. Free Analysis and No Guarantees

During the sales process, a quality tax resolution company will collect basic information about your unique financial situation and provide you with a free tax analysis to determine which IRS tax resolution programs you are likely to qualify for – Offer in Compromise, Installment Agreement, etc. Because of the strict eligibility guidelines associated with each program, you will not qualify for all of them. As such, you should know which tax resolution programs you may qualify for before retaining a company. Additionally, do not be fooled by tax resolution companies that claim they can guarantee the acceptance of a particular tax resolution. No company can guarantee with certainty any type of tax resolution because of the strict eligibility guidelines associated with each program.

“Willfully” in this case means voluntarily, consciously, and intentionally. You are acting willfully if you pay other expenses of the business instead of the withholding taxes.

Businesses with Employees – Trust Fund Taxes

A trust fund tax is money withheld from an employee’s wages (income tax, social security, and Medicare taxes) by an employer and held in trust until paid to the Treasury.

When you pay your employees, you do not pay them all the money they earned. As their employer, you have the added responsibility of withholding taxes from their paychecks. The income tax and employees’ share of FICA (social security and Medicare) that you withhold from your employees’ paychecks are part of their wages you pay to the Treasury instead of to your employees. Your employees trust that you pay the withholding to the Treasury by making Federal Tax Deposits. That is why they are called trust fund taxes.

Through this withholding, your employees pay their contributions toward retirement benefits (social security and Medicare) and the income taxes reported on their tax returns. Your employees’ trust fund taxes, along with your matching share of FICA, are paid to the Treasury through the Federal Tax Deposit System. The withheld part of these taxes is your employees’ money, and the matching portion is their retirement benefit.

Employment tax deposits are a current expense. Postponing paying them is not the same as making a late payment on your phone bill or to a supplier. Congress has established large penalties for delays in turning over your employment taxes to the Treasury. The longer it takes to pay that money, the more it will cost you.

Employment Taxes and the Trust Fund Recovery Penalty (TFRP)

To encourage prompt payment of withheld income and employment taxes, including social security taxes, railroad retirement taxes, or collected excise taxes, Congress passed a law that provides for the TFRP. These taxes are called trust fund taxes because you actually hold the employee’s money in trust until you make a federal tax deposit in that amount. The TFRP may apply to you if these unpaid trust fund taxes cannot be immediately collected from the business. The business does not have to have stopped operating in order for the TFRP to be assessed.

Who Can Be Responsible for the TFRP

The TFRP may be assessed against any person who:

is responsible for collecting or paying withheld income and employment taxes, or for paying collected excise taxes, and

willfully fails to collect or pay them.

A responsible person is a person or group of people who has the duty to perform and the power to direct the collecting, accounting, and paying of trust fund taxes. This person may be:

an officer or an employee of a corporation,

a member or employee of a partnership,

a corporate director or shareholder,

a member of a board of trustees of a nonprofit organization,

another person with authority and control over funds to direct their disbursement, or

another corporation.

For willfulness to exist, the responsible person:

must have been, or should have been, aware of the outstanding taxes and

either intentionally disregarded the law or was plainly indifferent to its requirements (no evil intent or bad motive is required).

Using available funds to pay other creditors when the business is unable to pay the employment taxes is an indication of willfulness.

You may be asked to complete an interview in order to determine the full scope of your duties and responsibilities. Responsibility is based on whether an individual exercised independent judgment with respect to the financial affairs of the business. An employee is not a responsible person if the employee’s function was solely to pay the bills as directed by a superior, rather than to determine which creditors would or would not be paid. Notice 784, Could You Be Personally Liable for Certain Unpaid Federal Taxes?, contains additional information regarding the TFRP.

Figuring the TFRP Amount

The amount of the penalty is equal to the unpaid balance of the trust fund tax. The penalty is computed based on:

The unpaid income taxes withheld, plus

The employee’s portion of the withheld FICA taxes.

For collected taxes, the penalty is based on the unpaid amount of collected excise taxes.

Assessing the TFRP

If we determine that you are a responsible person, we will provide you a letter stating that we plan to assess the TFRP against you. You have 60 days after we deliver the letter to appeal our proposal. The letter will explain your appeal rights. Refer to Publication 5 (PDF), Your Appeal Rights and How to Prepare a Protest if You Don’t Agree, for a clear outline of the appeals process. If you do not respond to our letter, we will assess the penalty against you and send you a Notice and Demand for Payment.

Caution:
Once we assert the penalty, we can take collection action against your personal assets. For instance, we can file a federal tax lien or take levy or seizure action.

Avoiding the TFRP

You can avoid the TFRP by making sure that all employment taxes are collected, accounted for, and paid to the IRS when required. Make your tax deposits and payments on time. Additional information on employment taxes can be found in Publication 15, Employer’s Tax Guide, and Form 941 (PDF), Employer’s Quarterly Federal Tax Return (PDF).

Employment Taxes and the Trust Fund Recovery Penalty (TFRP)

NOTE: This headliner is current through the publication date. Since changes may have occurred after the publication date that would affect the accuracy of this document, no guarantees are made concerning the technical accuracy after the publication date.

Headliner Volume 103
December 8, 2004

The Internal Revenue Service cautions employers to collect and pay trust fund taxes as required by law. “Trust Fund” taxes are withheld income, social security and Medicare taxes. These monies are withheld from the salary payments of employees and paid over to the government by employers.

Most employers must withhold, deposit, report, and pay employment taxes on wages paid to their employees and must file Form 941, Employer’s Quarterly Federal Tax Return. For employment tax purposes, wages are defined as all pay to an employee for services performed. It includes salaries, vacation allowances, bonuses, commissions, and fringe benefits.

In addition, an employer may be required to make Federal Tax Deposits of the employment taxes. The IRS recommends making deposits through the Electronic Federal Tax Payment System (EFTPS). EFTPS is safe and secure and over 4 million taxpayers use it pay their taxes. Enroll and use EFTPS to be eligible for a penalty refund and avoid future penalties. Visit IRS .gov for more details. If that is not possible, a deposit may be made using the Federal Tax Deposit Coupon, Form 8109-B with an authorized financial institution. Visit the EFTPS Website for more information on electronic payment.

When an employer does not pay the trust fund taxes, and actions by IRS to collect these taxes are not successful, the responsible officers may be held personally liable for these taxes through the TFRP. The IRS uses the TFRP to facilitate collection of the trust fund portion of taxes. Section 6672(a) of the Code allows the Internal Revenue Service to reach the personal assets of responsible persons who do not withhold and pay to the government amounts required to be withheld.

The TFRP applies if income, social security and Medicare taxes that must be withheld are not paid by the person or persons responsible for the collection of trust fund taxes. The TFRP is a civil penalty assessed against a responsible person for failure to collect and pay over to the Government, withheld and collected taxes. The amount of the penalty is equal to the unpaid balance of the trust fund tax.

The TFRP can be avoided by making sure that all employment taxes are collected, accounted for, and paid to the IRS when required. Make required tax deposits and payments on time. Additional information on employment taxes can be found in Publication 15, Employer’s Tax Guide, and Form 941, Employer’s Quarterly Federal Tax Return. Additional penalties may apply if the required deposits are not made on time, if they are for less than the required amount, or if EFTPS is not used when required.

For additional information, visit TFRP page for who may be held responsible for the TFRP. `

What Does a Tax Attorney Do?

The role of a qualified tax attorney is multifaceted and appears in a variety of situations:

• A tax lawyer can offer legal counsel and representation as well as negotiate with the IRS for debt relief. This is particularly important for individuals who are being audited by the IRS, are under criminal investigation by the IRS or have committed tax fraud. A tax attorney is also needed if one plans on filing a suit against the IRS.
• A good tax attorney can provide tax and financial planning for individuals. This is necessary if one has a sizable estate and needs advice on estate planning strategies or needs to file an estate tax return.
• A good tax attorney can provide business tax planning and business strategy. New business owners can rely on the assistance of a qualified tax attorney to help them determine the appropriate legal structure for their ventures. A tax attorney’s advice is also needed for those who are engaged in international business and need help with contracts, tax treatment, and other legal matters.
• Finally, a tax attorney is a trusted adviser with sensitive information. Tax attorneys are bound by an attorney-client privilege to confidentiality. This means that they cannot testify against their clients.

Reasons to Hire a Tax Attorney Versus Other Professional Tax Consultants

There are several reasons to specifically hire a tax attorney as opposed to another qualified tax professional. Qualified tax consultants, such as CPA’s and tax preparers generally lack a legal background. They rarely have the same degree of expertise and familiarity as tax attorneys do in the complex legal environment of tax law.

One should also keep in mind that any attorney is permitted to practice before the United States Tax Court. But again, even if this person is cheaper to hire or even if this person is a well-seasoned lawyer, he or she may lack necessary knowledge and experience in the area of tax law, and that may bring detrimental consequences.

Confidentiality is another important aspect of hiring a tax attorney. As mentioned above, an attorney is bound by an attorney-client privilege to confidentiality. This means that unlike a CPA, for example, a tax attorney is legally exempt from being forced to testify against a client in court.

What Qualities and Experience Should One Look For in a Tax Attorney?

A qualified tax attorney will be equipped with comprehensive knowledge and training in tax law. To practice tax law, tax attorneys must have a law degree and must be admitted to the state bar. Most attorneys gain hands-on training in tax law, and many will additionally have a Master of Laws (LLM) degree in taxation. It is also fairly common for a tax attorney to have a background in accounting and even be a qualified CPA. Good tax lawyers should additionally have experience dealing with IRS collections and handling tax debts.

Finally, tax attorneys need to have good negotiation and communication skills so they can act as an intermediary between clients and the taxation authorities. The role of a tax attorney requires that they can negotiate beneficial deals on behalf of their clients.

How to Look for an Attorney and What Questions to Ask

While there are several ways to of finding a tax attorney, the three best options are:

• Seek out and contact personal referrals and recommendations.
• Ask a qualified tax preparer, accountant, or CPA for recommendations.
• Contact the local Bar Association.

Once a potential candidate has been found, it is important that one conduct a personal interview. Here are a few questions to ask:

• Is the attorney admitted to the state bar?
• Is the attorney a CPA or an enrolled agent?
• What does the tax attorney specialize in, and how long has he or she been in business?
• How many clients does the attorney have and what kinds of clients, such as individuals versus businesses?
• What are the tax attorney’s fees, what do they include, and does the person give monthly itemized statements?
• Can the attorney help with this particular tax case?
• Can the attorney offer a list of referrals?

In short, finding a good tax attorney may take a little work, but in most situations it is well worth the investment.

Failure to File Penalty

Many people think if they can’t pay for the taxes they owe there only option is to hide from the IRS. There are a number of options for people who can’t afford to pay the taxes they owe, including payment plans, but hiding is your worst move! The IRS failure to file penalty charges 10 times more than the failure to pay penalty. At the very least, file your taxes on time even if you owe money to save yourself a lot of money in fees!

About 33% of penalties charged by the IRS are later removed. The IRS will remove penalties if you have reasonable cause – or a valid excuse for not filing your taxes before they are due. When the IRS removes a penalty, its called Penalty Abatement and if you’ve been charged IRS penalties, you may want to look into filing a penalty abatement to see if you qualify.

Failure to Pay Penalty

Out of more than 140 different penalties the IRS can charge, the failure to pay penalty is one of the most common. When people don’t pay their taxes on time or don’t pay them in full without first setting up an installment agreement – a penalty is charged. Penalties are meant to scare people into following the laws, but the IRS realizes there are legitimate reasons when people are unable to pay their taxes on time.
If you have a reasonable cause for not paying your taxes, the IRS will often remove the failure to pay penalty if you file for a penalty abatement. Tax penalties are automatically imposed on individuals who don’t pay on time, but filing a penalty abatement allows your situation to be reviewed by a real person, and the IRS will analyze each on a case by case basis to determine whether or not to remove penalties.

How to File for a Penalty Abatement

There are three ways to file for an abatement to remove penalties:

1. Send a written request to the IRS explaining why you were penalized and why you feel you should be relieved of the penalties. Request a refund of the penalties.
2. Request an oral interview if you’re unable to clearly state your case in writing and then explain your case verbally.
3. Use IRS Form 843, the claim for refund and request for abatement form provided by the IRS.

Regardless of the method you choose, you want to provide as much information as you can, and include documentation if possible.

If your penalty abatement request is approved, you’ll be able to eliminate most (if not all) of the penalties but not any interest that has accumulated. Penalty abatement is a good option for people who can pay their tax liability but feel they shouldn’t be liable for the IRS penalties. Some of the common reasons for obtaining approval for an abatement of IRS penalties may include:

• Divorce
• Illness
• Incarceration
• Natural disaster, such as hurricane, tornado, flood, etc
• Death in the family
• Theft or destruction of records

A IRS Tax Attorney can get you back tax help and settle tax debt. But first, make sure the tax relief attorneys you hire do not have any complaints against them.

The IRS will take advantage of a taxpayer that is not knowledgeable about tax law and IRS collection procedures. Frankly, taxpayers need to be protected from IRS error, abuse and intimidation. Taxpayers frequently overpay their tax liability either as a consequence of inappropriate IRS actions or because they do not have the counsel of a skilled and experienced tax professionals such as IRS Tax Lawyers and tax relief attorneys.