Term
| What is the penalty for not filing? |
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Definition
| This is a misdemeanor. Penalties could be up to 1 yr in prison or 25K per year. What you owe in taxes will go up 4.5% per month but caps out at 22.5% |
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Term
| What is the penalty for filing but not paying? |
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Definition
| .5% per month (can drop to .25% if you set up an installment agreement, go up to 1% after final notice of intent to levy is sent) Caps out at 25% |
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Term
| Penalty for inaccurate tax reporting? |
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Definition
| Can be a one time penalty of 10 or 20% of the remaining balance owed. |
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Term
| Does a client of ATS have attorney/client privilege? |
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Definition
| All of their information will remain confidential, but no. This is because our attorneys work on cases for ATS not specifically for certain clients. |
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Term
| How many years back can one get a refund for an amended tax return? |
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Definition
| 3, otherwise you wont ever get that money |
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Term
| How soon must an appeal be made to an audit? |
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Definition
| Within 30 days, otherwise after that you have 90 days to appeal it in tax court |
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Term
| What does ATS offer it's clients? |
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Definition
| Protection; knowledge and expertise; not having to deal directly with the IRS; problem solving; getting into a better situation |
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Term
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Definition
| The original cost of an asset (may be adjusted upwards or downwards by improvements or damages made). Ex: If you buy a house for 300K and make 100K improvements, the house basis is now 400K |
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Term
| What are appreciation, devaluation and deprecetiation |
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Definition
Appreciation - market determines the value of the asset is more than what it was purchased for; Devaluation is the opposite
Depreciation: income tax deduction that allows a property owner to recover the basis of property that is used for business purposes. |
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Term
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Definition
| Tax Information Authorization |
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Term
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Definition
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Term
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Definition
| Franchise Tax Board: deals with income tax issues |
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Term
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Definition
| Board of equalization: sales tax issues |
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Term
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Definition
| Employment Development Department; unemployment taxes |
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Term
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Definition
| Automated Collection Services: lower level debt (less than 50K); call center where you can never reach the same person twice |
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Term
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Definition
| Revenue officer: assigned to specific cases either 50-100K or 100K + |
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Term
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Definition
| Come and find you in person - will talk to your neighbors and work and will lock up your business if they decide it's in the public good (this is done for not paying sales tax normally) |
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Term
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Definition
Collection Information Statement: Income, assets and expenses
Form 433-A Individuals & self-employed individuals
Form 433-B for businesses
Used to determine taxpayer's ability to pay in full debt owed (from those who've indicated an inability to pay the liability) |
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Term
| Collection Statute of Limitation |
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Definition
IRS has 10 years to collect on debt; from the date of assessment which isn't determined until you file
This is suspended if you're in bankruptcy or have an OIC
Can run down CSL time by setting up a really low payment plan or with Currently Non Collectible status |
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Term
| What are the community property states? |
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Definition
| There are 9: CA, LA, AZ, NM, NV, WI, WA, ID, TX |
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Term
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Definition
| A C-corp is publicly traded; they have an income tax; unlimited people can own, can be owned by foreign nationals; employees are paid by the corp and receive W2s. Files an 1120. |
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Term
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Definition
| Good for smaller businesses. Income tax only on individual employees. Capped at a limited number of owners. Can't be owned by foreign nationals. Files an 1120S. |
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Term
| What does a sole proprietorship have to do for tax purposes? |
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Definition
| Earnings and expenses of a company all flow onto one individual's tax return. |
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Term
| What does a partnership do for tax purposes? |
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Definition
| Files a 1065 for the partnership, and both parties get a Schedule K1 to show corresponding $ made or lost |
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Term
| What is an LLC and what does it do for tax purposes? |
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Definition
An LLC is a limited liability company (not a legal entity)
Sole member LLC - files a schedule C
Multiple member LLC files a 1065 like a partnership and gives out Schedule K1s |
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Term
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Definition
| Currently non collectible or status 53. Declared when you need minimal income to provide for yourself and your family. Easy for IRS to bump you out of if a W2 is turned in. |
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Term
| What is more valuable? A deduction or a credit? Why |
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Definition
| A deduction lowers the amount of income the government can tax you on. A credit is a dollar for dollar credit against your tax debt. |
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Term
| Below what debt amount does a federal lien have the potential to be discharged? |
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Definition
| Below 25K - can be set up with a 3 month payment plan, then 1 month after the lien will be removed. |
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Term
| Who is earned income tax credit given to? |
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Definition
| Low income wage earners, even if no income tax was withheld. |
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Term
| What does an Enrolled Agent do? |
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Definition
| They're licensed by the Department of Treasury and can represent taxpayers for audits, collections and appeals |
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Term
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Definition
Federal Insurance Contributions Act: Collects $$ for Social Security and Medicare mostly; levied on employers, employees and self-employed folks
File a 941 on a quarterly basis each year; failure to pay will result in IRS seizing bank accounts and cutting off business's distributors/suppliers/etc. Or business will be completely shut down. |
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Term
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Definition
Federal Unemployment Tax Act: levied on employers
Report once a year on a 940. Provides for unemployment. |
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Term
| What sum can one individual give to another without that amount being taxed in a given year? |
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Definition
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Term
| FTD - Federal Tax Deposit |
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Definition
| Federal Tax Deposit: Employer must deposit employment taxes withheld monthly or semi-weekly (depending on the amount of $) with an authorized commercial or federal reserve bank *Normally handled by an outside company like Paychex, etc. |
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Term
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Definition
| Otherwise known as a levy, a garnishment is where a creditor (the IRS or the state perhaps) obtained judgment on a debt and may obtain full or partial payment by seizure of a portion of a taxpayer's assets such as wages, bank accounts, etc. |
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Term
| What happens in the event of a wage garnishment? |
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Definition
Once wages have been taken as a result of a garnishment, that money can't be recovered. State governments can garnish 25% of income (almost impossible to remove, but can get it substantially reduced based on a hardship., IRS will exempt a small amount of funds and seize the rest.
Wage garnishments on 1099s will result in the IRS seizing 100% of their wages. |
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Term
| What happens in the event of a bank account garnishment? |
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Definition
| This garnishment is 1 time and freezes the money in the account that was there the day the bank got the letter. The debtor has 21 days from then to get their money back. (10 days in CA) State levies on bank accounts are very difficult to release. In most cases to release the money there needs to be proof of financial hardship. |
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Term
| How fast will it take us to get a garnishment removed? |
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Definition
| Could be as fast as a few days or a week but that is if the RO cooperates and the client was honest about their history. |
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Term
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Definition
| When a spouse is not liable for her husband's tax liability if they can prove via petition that they unknowingly signed a join tax return document not knowing that the information on it was inaccurate or under duress. |
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Term
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Definition
Only case besides innocent spouse where spouse can be absolved of their spouse's debt even if they signed knowing that the info on the tax return was inaccurate:
Taxpayer must show it would be unfair to be held liable based on financial or medical hardship. |
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Term
| What are the 4 licensed taxpayer representatives? |
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Definition
| Attorneys, Enrolled Agents, CPAs and former IRS employees who worked with tax returns for at least 5 years. |
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Term
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Definition
| Action by the IRS recorded with the court or county to seize property to satisfy a tax liability. If you don't have any property, they will issue a lien against your Social Security number to keep you from taking out loans and will affect your credit report. |
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Term
| What's the difference between a lien discharge, release and subordination? |
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Definition
Discharge: removal of a lien on property to allow for it's sale or disposal.
Release: When the debt is paid or if the taxpayer can prove they are suffering from a financial hardship.
Subord: Set aside temporarily to allow a refinance. |
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Term
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Definition
| Offer in Compromise: When you the IRS and a debtor come to a compromise (in both of their best interests) and allow the taxpayer to pay less than the amount owed based on a comparison to Reasonable Collection Potential. |
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Term
| What are the 3 instances in which OICs will be granted? |
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Definition
Doubt as to liability (rare) 656L - doubt exists that the assessed tax is correct
Doubt as to collectibility (most common)656 - doubt exist that debtor could ever pay the full amount of tax
- Effective Tax Administration: must demonstrate the collecting the debt would be unfair or inequitable. |
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Term
| How long does it take to get an OIC through? |
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Definition
| 12-24 months since the offer may be turned down and appealed |
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Term
| What is RCP and how is it calculated? |
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Definition
Reasonable Collection Potential.
Monthly Disposable Income(Income - Allowable Expenses) x 12 + value of assets (if it can be paid in one installment)
x 24 + Value of Assets (if it will be paid in monthly installments over the course of two years) |
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Term
| How are value of assets calculated? |
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Definition
Add up:
Value of 401K/IRA/Stocks/Bonds: 70%
Value of Savings/Cash: 100%
Value of hard assets (Real Estate/Cars): 80%
Subtract any loans. |
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Term
| What is a qualified domestic relations order? |
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Definition
| If you divorce someone and need to give them half of your 401K you can get the court to waive the 10% early withdrawal penalty and the tax on that money. Your ex can now keep the money and be taxed on it or can put it in their 401k. |
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Term
| What forms does a sole proprietor (or 1099) file? |
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Definition
| Files a 1040 with a schedule C attached. The Schedule C allows them to deduct business expenses from gross income. |
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Term
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Definition
| Like FICA for 1099s - encompasses Social Security and Medicare (about 15% of their income) if net earnings are $400 or more. Capped at 110K. |
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Term
| What are the standard deductions? |
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Definition
Married couples filing jointly: 11,900
Singles or married filing individually: 5,950
Heads of household: 8,700 |
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Term
| What is a Stay of Collection? |
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Definition
| Form filed where IRS will not contact you for 90 days; EAs can ask the RO for this to get the client into compliance. |
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Term
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Definition
| Substitute for Return: If a taxpayer hasn't filed, the IRS will file for them (2-3 years later) in the best interest of the IRS; standard deduction (based on the last return filed)and one exemption. |
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Term
| What money is exempt from taxation? |
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Definition
| Gifts under 14K, inheritance under 5.25 mil, insurance pay out or court payment for pain/suffering/medical |
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Term
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Definition
| Amount allowed for a personal exemption (if filing a joint return) and for a dependency exemption; each worth $3,800 as a deduction from gross income. |
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Term
| What are the 9 states without income tax? |
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Definition
| NV, WA, FL, AL, SD, TX, TN, WY, NH |
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Term
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Definition
| An informational statement pertaining to an individual's finances: income, assets and expenses. 433A for individuals/self-employed; B for businesses. Filed in conjunction with an OIC. |
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