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Navigating statute of limitations extension agreements

In recent posts, we’ve been looking briefly at the statute of limitations for the IRS to pursue additional payments in tax audits. As we noted last time, the IRS generally has three years to make tax assessments, does sometimes ask taxpayers to agree to an extension of the deadline for assessing taxes. Though taxpayers do not have to agree to such an extension, doing so can benefit them in some circumstances.

For the IRS, an extension allows extra time to finish an audit and to process the results before making a final decision. Extending the statute of limitations allows a taxpayer additional time to produce documentation to support the taxpayer’s position in the audit or to request an appeal from the results of an audit. It can also give a taxpayer additional time to claim a tax refund or credit. 

When art is your business

There are certain activities out there that some people do as a business while others do as a hobby. Art is among these activities. Professional artists or other individuals who are trying to make a business out of one of these activities can face scrutiny from the Internal Revenue Service over whether they are actually engaged in business or instead are just a hobbyist. This issue can be a major focus area when such an individual ends being audited by the IRS.

Why does it matter tax-wise whether an artist is a professional or a hobbyist? Well, it can have major implications on what sorts of tax deductions they would be allowed. If their art activities are considered a business, they would be able to deduct many of the expenses related to these activities. If, however, the activities are deemed a hobby, such deductions generally would not be available.

Can you pay employees in cash?

Failing to pay payroll taxes causes severe penalties from the IRS. In fact, the IRS tends to view this kind of tax evasion as more serious than that of income tax evasion. Usually businesses don't pay employment taxes du e to financial hardship, but another reason a business may not be paying them is due to paying employees in cash. This isn't illegal unless the purpose behind it is to avoid paying taxes. The practice of not reporting cash payments is usually associated with employees, but it applies to employers, too. Here's what you need to know about cash payments so you don't end up with fines or even a jail sentence.

What is the statute of limitations for a tax audit? P.2

Previously, we looked briefly at the time limitations for the Georgia Department of Revenue to conduct an audit and assess penalties on a taxpayer. As we noted, three years is the general rule, though six years is the maximum amount of time the state has to assess additional tax liabilities on a taxpayer.

At the federal level, the rules are very similar. First of all, most IRS audits occur within a couple years of a tax filing or the due date of a filing, though the IRS is able to include returns filed within the last three years, under ordinary circumstances. The IRS is able to add filings going more than three years back if the taxpayer made a substantial error in a return, but the agency may not audit tax returns going back over six years. 

What is the statute of limitations for a tax audit? P.1

One of the issues taxpayers need to be aware of when coming under a tax audit is that tax authorities at both the state and the federal level don’t have an unlimited amount of time with which to pursue unpaid taxes. There is a time limit for tax authorities to act, known as the statute of limitations. The statute of limitations is different under federal law than it is under state law.

Here in Georgia, the Department of Revenue ordinarily has three years after to asses assess additional tax. If, however, a taxpayer files a claim for a refund within six months of the closing of the three year period, the Department of Revenue has another six months to assess additional tax liabilities, based on the day the refund claim is filed. 

Why worker classification decisions are important

Many key decisions come up for a business as it is bringing a new worker on. One is whether to classify the worker as an employee or an independent contractor. What classification a worker is given can have many implications for a company, including tax implications. A worker being an employee puts some added tax requirements on a business, as we note in our page on tax issues regarding classification.

Now, a business cannot simply pick whichever classification is likes most for a worker. There are many different factors regarding the relationship between a company and a worker which impact which class the worker should be in. The many factors at play can make figuring out a worker’s classification a complex issue.

IRS to use contractors to collect back taxes: be aware of your rights, P.2

In our last post, we began looking at IRS initiative to collect certain types of tax debts by using third party contractors. One concern taxpayers are bound to have about the effort is how to protect themselves from being scammed. There are several measures the IRS has set for to address this issue.  

First of all, the IRS will reportedly provide written notification to taxpayers and their representatives that their accounts have been assigned for private collections. In addition, the collection agencies are required to send separate notification confirming the transfer of the taxpayer’s account. Taxpayers do have the ability to object in writing to the transfer of their account. 

How to prevent a tax audit

Taxes are no fun to prepare, but doing them correctly can reduce the chances that the IRS will audit you. The likelihood of an audit is already very small, but it can increase significantly if you make mistakes, lie on your form or earn $1 million or more. The IRS searches for errors and omissions that will increase its revenue. Follow the se tips to avoid red flags that can get you audited.

IRS to use contractors to collect back taxes: be aware of your rights, P.1

Last month, the Internal Revenue Service announced that private debt collection companies will soon be partnering with the agency to collect tax debts. The effort was authorized by the Fixing America’s Surface Transportation Act, which requires the IRS to use third party contractors to collect certain types of inactive tax debts.

Several types of tax debt are targeted by the law. First, there are debts which have been taken out of the agency’s active inventory because the agency doesn’t have the resources or ability to find the taxpayer. Second, there are those debts for which over one-third of the limitation period has passed with no IRS employee having been assigned for collection. Third, there are debts which have been assigned for collection, but for which more than one year has passed without contact with the taxpayer in furtherance of collection efforts. 

What are my options for paying back tax debt? P.2

In our last post, we began discussing two common repayment options for taxpayers: installment agreements and offers in compromise. Like installment agreements, there are certain requirements that must be met for a taxpayer to qualify for an offer in compromise. As we’ve mentioned, the IRS will look at a taxpayer’s ability to pay the tax gate, his or her income, expenses, and the quality of his or her assets.

An offer in compromise can be paid either by a lump sum or as a periodic payment. If a lump sum, an initial payment of 20 percent of the total offer amount is supposed to be submitted. If the offer is accepted, the taxpayer is then required to pay the rest of the balance off in less than five payments.

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Located in Atlanta, The Peck Group, LC, represents clients nationwide. Regionally, we are committed to serving clients in Fulton County and throughout the state of Georgia.