by Fresh Start Tax | Aug 4, 2020 | Tax Help
Trust fund penalties can be assessed against responsible parties who should have turnover the withholding and Social Security taxes to the government on 941 taxes, did not, and IRS deemed those individuals responsible under the willful standards.
The Internal Revenue Service has a number of things that they look at before they set up the trust fund taxes against those responsible for the 6672 penalty.
One of the biggest things IRS looks at is “willfulness” and who those should have paid over the taxes but failed to do so.
That willfulness standard is a hinge point on what IRS looks for.
Many times the willful standards need to be clarified so a person knows what they’re up against in dealing with the Internal Revenue Service or the Appellate Division.
Under The IRM 8.25.1.3.2 (12-07-2012) the current protocols are as follows:
Definition of Willfulness
1. The trust fund recovery penalty is a civil penalty; so the degree of willfulness in failing to collect or pay over any tax leading to liability for this penalty is not as great as that necessary for criminal proceedings.
Willfulness in the context of the TFRP is defined as intentional, deliberate, voluntary, and knowing, as distinguished from accidental. “Willfulness” is the attitude of a responsible person who with free will or choice either intentionally disregards the law or is plainly indifferent to its requirements.
Some factors to consider when determining willfulness are:
• Whether the responsible person had knowledge of a pattern of noncompliance at the time the delinquencies were accruing;
• Whether the responsible person had received prior IRS notices indicating that employment tax returns have not been filed, or are inaccurate, or that employment taxes have not been paid;
• The actions the responsible party has taken to ensure its Federal employment tax obligations have been met after becoming aware of the tax delinquencies; and
• Whether fraud or deception was used to conceal the nonpayment of tax from detection by the responsible person.
Here is the instruction which the district judge gave:
Liability is imposed on a responsible person, under Section 6672, only if the person willfully fails to collect, account for, or pay over withheld taxes.
“Willfulness, ” within the meaning of Section 6672, requires a voluntary, conscious and intentional act to prefer other creditors over the United States. Liability does not depend on the presence of an evil motive or specific intent to deprive the government of revenue.
In fact, conduct motivated by a reasonable cause may, nonetheless, be willful.
Rather, a responsible person acts willfully whenever he permits funds of the corporation to be paid to other creditors when he is aware that withholding taxes due the government have not been paid.
In other words, when a responsible person does not use his authority to see that the withholding taxes are paid, but rather permits the corporation to continue its operation, paying suppliers and other creditors, his conduct is willful.
Further, even in the absence of express knowledge of a default and payment of withholding taxes, willfulness, for the purpose of Section 6672, exists where a responsible person pays other creditors with a reckless disregard as to whether trust fund taxes have been paid over to the government.
For this purpose, recklessness is established if the party, first, clearly ought to have known that; second, there was a grave risk that withholding taxes were not being paid, and if, three, he was in a position to find out for certain very easily.
Recklessness is also established if a responsible person fails to investigate or correct mismanagement after being notified of a default in the payment of withholding tax.
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by Fresh Start Tax | Aug 4, 2020 | Tax Help
The Schedule C IRS Tax Audit, we can take the pain out of this IRS tax audit.
On staff are former IRS agents, CPAs and tax attorneys. We have handled thousands of cases. If you have any questions we are happy to answer about any tax audit you are going through.
Schedule C audits can be easy or very painful and believe it or not at all depends on the agent who works the case and how picky, sticky or how much they want to delve into the case.
Some IRS audit agents want every last piece of documentation and others are much more relaxed & understanding about the situation and may just want averages.
The agent you have is in a control of the case and the volume of information that they want.
Also, keep in mind the auditor can go back three years if they choose and ask for the current year to be filed to review that as well.
WHAT IS IRS ASKING FOR?
If your notice lists Schedule C (Form 1040 or 1040-SR) (PDF) income, look at Form 11652, Questionnaire and Supporting Documentation, Form 1040 or 1040-SR Schedule C (Profit or Loss from Business).
It lists the documents you must send that support the income and expenses claimed on your Schedule C. Documentation is king.
You should eview each line of this form and make sure you correctly answer every question.
Return the Form 11652 with the requested supporting documents, such as copies of your business records, Form 1099-MISC and your business license.
It is important to keep all documents used to complete your tax return.
The documents kept should include:
1.records supporting the income,
2.expenses, deductions or credits you claimed, such as invoices, receipts, mileage logs, and,
3.checking account statements showing amounts paid, and any other proofs of payment.
Make sure your records should be well-organized to answer any questions when your return is selected for audit.
The records supporting items on your tax returns should be kept for at least three years after filing your return. IRS can go back 3 years if they chose.
You must send copies of your records that show the gross receipts and business expenses claimed on your Schedule C.
What are Gross receipts? They are the total income from your business.
Proof of your gross receipts includes cash register tapes, bank statements, bank deposit slips, receipt books, sales invoices, credit card charge slips, and Forms 1099-MISC.
IRS will want all Business expenses. Business expenses are the costs paid to carry on your business and proof of your expenses includes canceled checks or checking account statements which clearly show the expenses paid, cash register tapes, account statements, credit card sales slips, and invoices.
After you complete your response, look at the Form 11652 to make sure you included all the necessary information.
Need help, call us today.
by Fresh Start Tax | Aug 3, 2020 | Tax Help
The IRS Earned Income Credit Audit, Call Former IRS Agents, Since 1982.
There’s nothing worse than receiving a nasty gram from the Internal Revenue Service to find out they are going out audit parts of your tax return.
One of the favorite audits that are going on with IRS right now is the earned income credit.
That is happening because the abuse that’s going on with preparers taking the earned income credit to taxpayers that are not eligible.
The IRS is going crazy on the tax returns with the EIC.
If you are going through an IRS tax audit need help calls today and have former IRS agents who have a combined 100 years professional tax experience in working for the IRS defend your IRS tax audit.
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Learn about the Tax Audit and what is required.
Your package to IRS should include a Form 886-H-EIC that lists all the different documents you can send to prove you may claim the EIC with one or more qualifying children.
You can send any combination of these documents to provide the information the IRS needs.
Look at the Schedule EIC you filed with your tax return and complete the following steps for each qualifying child listed:
1. you must prove you lived with your child in the U.S. for more than half the tax year:
a. If your child lived with you at the address shown on your notice, you need to send a document showing your child lived at that same address for more than half the tax year.
b. If you moved and you and your child lived at another address, you must send documents showing the same address for both of you for more than half the tax year.
c. If your child didn’t go to school, you can send in copies of medical records or a statement from a daycare provider.
d. If you need to get a statement from your child’s school, daycare or medical care provider, you can find templates here. Your school or provider can copy and paste the template to their letterhead to make sure all the required information is provided.
e. Don’t forget to check the Form 886-H-EIC for more examples of documents you can send.
f. If you can’t prove your child lived with you for more than half the tax year, you cannot get the EIC.
You must verify how you’re related to the child.
The child must be related to you in one of the ways listed on the Form 886-H-EIC.
The form gives examples of what to send to prove how you’re related.
If your child is age 19 years old or over, you must verify either that:
a. Your child was under age 24 and a full-time student for at least five months of the tax year (you can do this by sending copies of official school records), or
b.Your child is permanently and totally disabled (you can do this by sending a copy of one of the official documents shown on Form 886-H-EIC).
You must verify you, your spouse (if filing a joint return) and your child have a valid SSN:
a. To claim the EIC, you (and your spouse, if filing a joint return) must have a valid SSN issued by the Social Security Administration (SSA) by the due date of your 2019 return (including extensions).
b.Any qualifying child listed on Schedule EIC also must have a valid SSN by the due date of your 2019 return (including extensions).
You can only claim the EIC if your child lived with you for more than half the tax year in the United States. Your child must also be related to you in one of the ways listed on the Form 886-H-EIC, and be an eligible age.
Your child must meet all three of these requirements to qualify you for the EIC.
If you can’t show that your child meets all the requirements, you may still be eligible for the EIC without a qualifying child.
The IRS Dependents Test
The next item is the dependents you claimed. Your dependents are listed in the middle of the first page of your tax return. The Form 886-H-DEP lists all the documents or combination of documents you can use to prove you can claim each child listed as your dependent.
To claim a child as a dependent qualifying child, the child must have lived with you for more than half the tax year (the residency test), be related to you (the relationship test), be a certain age (the age test), and not have provided over half of his or her own support (the support test).
a. If each child listed on your Schedule EIC is the same child you claimed as a dependent, you can use the same documents you used to prove you may claim the EIC to prove the child met the tests for a dependent qualifying child. You don’t have to send in copies of the same documents or look for different ones. But, you must use the Form 886-H-DEP to see what information must be provided to verify that the child meets the support test.
The IRS Support Test
a. To meet the support test, the child can’t pay more than half of his or her own support.
b. You don’t need to send proof of support at this time.
If you received this CP75 notice, you claimed a child as a dependent qualifying child. If you find the child doesn’t meet the rules to be your qualifying child, you may be able to claim the child as a dependent qualifying relative. See the rules on the Form 886-H-DEP for a qualifying relative. If the child meets the rules, you need to send the documents listed on the Form 886-H-DEP for a qualifying relative.
The IRS Filing Status Requirement
The next item listed is filing status. Look at the first page of your tax return, the first line shows your filing status.
If you filed as head of household, you need to look at the Form 886-H-HOH that lists all the different documents or combination of documents you can send to prove that you may claim this filing status.
To file as head of household, you must pass three tests: the marriage test, the qualifying person test, and the cost of keeping up a home test.
First you must meet the marriage test:
a. If you were never married or you’re a widow or widower, don’t submit anything for the marriage test. Only submit documents for the qualifying person and cost of keeping up a home test.
b. If you’re still married and lived with your spouse at any time during the last six months of the year, you can’t file as head of household, unless your spouse was a nonresident alien at any time during the tax year. Instead, you must file either as married filing jointly or married filing separately.
c. If you were divorced or legally separated by December 31 of the tax year shown on your notice, you must send a copy of your divorce decree or separation papers.
d. If you’re still married but lived apart for the last six months of the tax year shown on your notice, you must send us documents, such as a copy of a lease agreement, showing you and your spouse lived at different addresses.
Next is the qualifying person test:
The documents you send for the EIC and to prove you had a qualifying dependent will show you meet this test. So, you don’t have to send us any more documents for this test.
The cost of keeping up a home test:
a. If you didn’t meet both the marriage and the qualifying person tests, you can’t file as head of household.
b. If you met both the marriage and the qualifying person tests, you must send documents showing you paid more than half the cost of keeping up the home that the qualifying person and you lived in for more than half the tax year.
Documents must show you paid more than half the household expenses, such as rent, utilities, groceries, repairs and maintenance. If the qualifying person was your parent, you did not have to live with your parent, but you must prove that you paid more than half of the cost of maintaining a home for your parent for the entire tax year.
c. If any other filing status other than head of household is used, no documentation is needed at this time.
Need help, call us today.
by Fresh Start Tax | Aug 3, 2020 | Tax Help
Need Tax Help For Your CP75 or CP75, A Notice Request Asking For for Supporting Documentation
This notice is basically telling you that IRS is auditing your tax return. This is generally not good news and it’s best to get professional tax representation unless your records are spot on and you feel you have all the records to sustain an IRS tax audit.
In this letter or notice/notice that you’ve received from IRS, they are letting you know that you must send documentation to close an existing examination that currently exists regarding some of your tax records.
IRS is basically asking for substantiation.
The last thing that you want to do is to ignore this notice.
It’s very important that the IRS hears from you by the date shown on your notice.
If you need more time to get all the requested information, please call us today and we can help defend your tax audit and get you the time you need.
This notice tells you EXACTLY what items on your tax return the IRS is auditing.
Here is what You Need to Know
a. At the top of the notice on the right side, we list the tax year that we’re auditing.
b. Any documents you send in need to cover the year we’re auditing.
c. Don’t send original documents. Only Send us copies.
The IRS Earned Income Credit Audit
The first item listed is the earned income credit.
Your package includes a Form 886-H-EIC that lists all the different documents you can send to prove you may claim the EIC with one or more qualifying children.
You can send any combination of these documents to provide the information the IRS needs.
Look at the Schedule EIC you filed with your tax return and complete the following steps for each qualifying child listed:
1. you must prove you lived with your child in the U.S. for more than half the tax year:
a. If your child lived with you at the address shown on your notice, you need to send a document showing your child lived at that same address for more than half the tax year.
b. If you moved and you and your child lived at another address, you must send documents showing the same address for both of you for more than half the tax year.
c. If your child didn’t go to school, you can send in copies of medical records or a statement from a daycare provider.
d. If you need to get a statement from your child’s school, daycare or medical care provider, you can find templates here. Your school or provider can copy and paste the template to their letterhead to make sure all the required information is provided.
e. Don’t forget to check the Form 886-H-EIC for more examples of documents you can send.
f. If you can’t prove your child lived with you for more than half the tax year, you cannot get the EIC.
You must verify how you’re related to the child.
The child must be related to you in one of the ways listed on the Form 886-H-EIC.
The form gives examples of what to send to prove how you’re related.
If your child is age 19 years old or over, you must verify either that:
a. Your child was under age 24 and a full-time student for at least five months of the tax year (you can do this by sending copies of official school records), or
b.Your child is permanently and totally disabled (you can do this by sending a copy of one of the official documents shown on Form 886-H-EIC).
You must verify you, your spouse (if filing a joint return) and your child have a valid SSN:
a. To claim the EIC, you (and your spouse, if filing a joint return) must have a valid SSN issued by the Social Security Administration (SSA) by the due date of your 2019 return (including extensions).
b.Any qualifying child listed on Schedule EIC also must have a valid SSN by the due date of your 2019 return (including extensions).
You can only claim the EIC if your child lived with you for more than half the tax year in the United States. Your child must also be related to you in one of the ways listed on the Form 886-H-EIC, and be an eligible age.
Your child must meet all three of these requirements to qualify you for the EIC.
If you can’t show that your child meets all the requirements, you may still be eligible for the EIC without a qualifying child.
The IRS Dependents Test
The next item is the dependents you claimed. Your dependents are listed in the middle of the first page of your tax return. The Form 886-H-DEP lists all the documents or combination of documents you can use to prove you can claim each child listed as your dependent.
To claim a child as a dependent qualifying child, the child must have lived with you for more than half the tax year (the residency test), be related to you (the relationship test), be a certain age (the age test), and not have provided over half of his or her own support (the support test).
a. If each child listed on your Schedule EIC is the same child you claimed as a dependent, you can use the same documents you used to prove you may claim the EIC to prove the child met the tests for a dependent qualifying child. You don’t have to send in copies of the same documents or look for different ones. But, you must use the Form 886-H-DEP to see what information must be provided to verify that the child meets the support test.
The IRS Support Test
a. To meet the support test, the child can’t pay more than half of his or her own support.
b. You don’t need to send proof of support at this time.
If you received this CP75 notice, you claimed a child as a dependent qualifying child. If you find the child doesn’t meet the rules to be your qualifying child, you may be able to claim the child as a dependent qualifying relative. See the rules on the Form 886-H-DEP for a qualifying relative. If the child meets the rules, you need to send the documents listed on the Form 886-H-DEP for a qualifying relative.
The IRS Filing Status Requirement
The next item listed is filing status. Look at the first page of your tax return, the first line shows your filing status.
If you filed as head of household, you need to look at the Form 886-H-HOH that lists all the different documents or combination of documents you can send to prove that you may claim this filing status.
To file as head of household, you must pass three tests: the marriage test, the qualifying person test, and the cost of keeping up a home test.
First you must meet the marriage test:
a. If you were never married or you’re a widow or widower, don’t submit anything for the marriage test. Only submit documents for the qualifying person and cost of keeping up a home test.
b. If you’re still married and lived with your spouse at any time during the last six months of the year, you can’t file as head of household, unless your spouse was a nonresident alien at any time during the tax year. Instead, you must file either as married filing jointly or married filing separately.
c. If you were divorced or legally separated by December 31 of the tax year shown on your notice, you must send a copy of your divorce decree or separation papers.
d. If you’re still married but lived apart for the last six months of the tax year shown on your notice, you must send us documents, such as a copy of a lease agreement, showing you and your spouse lived at different addresses.
Next is the qualifying person test:
The documents you send for the EIC and to prove you had a qualifying dependent will show you meet this test. So, you don’t have to send us any more documents for this test.
The cost of keeping up a home test:
a. If you didn’t meet both the marriage and the qualifying person tests, you can’t file as head of household.
b. If you met both the marriage and the qualifying person tests, you must send documents showing you paid more than half the cost of keeping up the home that the qualifying person and you lived in for more than half the tax year.
Documents must show you paid more than half the household expenses, such as rent, utilities, groceries, repairs and maintenance. If the qualifying person was your parent, you did not have to live with your parent, but you must prove that you paid more than half of the cost of maintaining a home for your parent for the entire tax year.
c. If any other filing status other than head of household is used, no documentation is needed at this time.
The American Opportunity Credit
The next section is the American opportunity credit.
If you claimed AOTC, you must complete Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits) (PDF) and send it with your tax return. Also, look for one or two entries on your tax return for the lines listing “Education credits” or “American opportunity credit.”
If your tax return shows you didn’t claim the credit, you don’t need to send documents to prove this credit.
If you claimed AOTC, the student claimed on your Form 8863 should have received a Form 1098-T, Tuition Statement (PDF). Schools are required to send this form to all eligible students unless an exception applies.
If the student didn’t receive this form and is eligible for AOTC, contact the school for the form.
If you received payments for education expenses from your employer, veterans’ educational assistance, or other benefits, you can’t claim these expenses for this tax credit.
You must subtract the expenses paid by these payments and benefits from your total tuition costs and other eligible expenses.
a. If you claimed AOTC, we need proof that each student listed on the Form 8863 (PDF) is eligible. The Form 1098-T (PDF) has the amount of qualified education expenses paid in box 1.
IRS will need a copy of that form.
b. If you had more expenses than the amount listed in box 1 of the Form 1098-T (PDF), we need canceled checks or receipts for fees, books, and supplies that were required for the course or courses.
If You Have Additional Items Listed
Your notice may have more items listed, such as the Premium Tax Credit or Schedule C income. First, let’s cover other important information you need to know.
If IRS Does Hear from You, you are in tax trouble
Make sure you mail or fax all the necessary documents by the date in this section. If you need more time to get all the documents ready, call us at the number listed on the top right part of the page.
But, if you review your return and your notice and realize you didn’t qualify for any of the items shown on your notice, don’t send anything. We’ll get back to you with an examination report after the deadline shown on your notice.
Response Form back to IRS
The last part of the notice is the response form. If you have documents proving you may claim one or more of the items listed, you need to complete the response form and either:
a. Fax the completed response form to us along with copies of the records, documents, and statements to the toll-free fax number on your notice.
b. Return the completed response form to us along with copies of the records, documents, and statements in the return envelope in your packet or to the address shown on the notice.
After IRS Receives Your Information
It takes at least 30 days to review the documents you send us. You don’t need to do anything until you hear from us.
If you sent us copies of documents that proved you were eligible for items you claimed on your tax return, we will send you a notice to let you know your audit is closed. If we held your refund, you should get your refund in eight weeks if you don’t owe other taxes or debts we’re required to collect.
If the documents you send don’t give us the information we need or only verify some of the items, we will send you an audit report.
The report will explain our proposed changes and show the amount of tax you owe or the corrected amount of any refund you may receive.
The Schedule C IRS Tax Audit
If your notice lists Schedule C (Form 1040 or 1040-SR) (PDF) income, look at Form 11652, Questionnaire and Supporting Documentation, Form 1040 or 1040-SR Schedule C (Profit or Loss from Business). It lists the documents you must send that support the income and expenses claimed on your Schedule C.
Review each line of this form and make sure you correctly answer every question. Return the Form 11652 with the requested supporting documents, such as copies of your business records, Form 1099-MISC (PDF), and your business license.
It is important to keep all documents used to complete your tax return.
The documents kept should include records supporting the income, expenses, deductions or credits you claimed, such as invoices, receipts, mileage logs, and checking account statements showing amounts paid, and any other proofs of payment.
The records should be well-organized to answer any questions when your return is selected for audit. The records supporting items on your tax returns should be kept for at least three years after filing your return.
When your return is selected for audit, you must send copies of your records that show the gross receipts and business expenses claimed on your Schedule C.
a. Gross receipts are the income from your business. Proof of your gross receipts includes cash register tapes, bank statements, bank deposit slips, receipt books, sales invoices, credit card charge slips, and Forms 1099-MISC.
b. Business expenses are the costs paid to carry on your business and proof of your expenses includes canceled checks or checking account statements which clearly show the expenses paid, cash register tapes, account statements, credit card sales slips, and invoices.
After you complete your response, look at the Form 11652 to make sure you included all the necessary information.
The IRS Premium Tax Credit
If your notice lists the Premium Tax Credit (PTC), look at the Form 14950, Premium Tax Credit Verification (PDF). This form lists what document or documents you need to submit to verify you qualify for this credit.
You must have health insurance through an exchange or marketplace to claim this credit. If you didn’t get your health insurance through an exchange or marketplace, you’re not eligible for the PTC and you don’t need to send any information to prove this credit.
If you bought your insurance through an exchange or marketplace, you must send copies of documents used to support any entries you have on Part 4, Allocation of Policy Amounts or Part 5, Alternative Calculation for Year of Marriage, on your Form 8962, Premium Tax Credit (PTC) (PDF). We need the document that lists who your plan covers.
This list is on your insurance enrollment form or on a statement from your insurance provider. If you paid insurance premiums, submit the proof of payment. This proof can be paid receipts, credit card statements, bank statements showing who was paid, or copies of both sides of your canceled checks.
You also must submit a copy of your Form 1095-A, Health Insurance Marketplace Statement (PDF). If you didn’t receive this form or you didn’t keep it, contact your plan administrator.
