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Charitable Contributions Are Being Scrutinized by IRS

- Scott Scammahorn

In recent months, it has come to the attention of the Department of the Treasury and the Internal Revenue Service (IRS) that certain individuals, called promoters, have been falsely stating to taxpayers that they could make charitable contributions of conservation easements in exchange for tax deductions in excess of the amount of the contribution. These types of legal issues are being scrutinized by the IRS to ensure compliance with the spirit of charitable contributions and to ensure that individuals are not using charitable contributions to avoid taxes.

Tax Avoidance or Tax Deductions?

According to the IRS, these types of transactions are considered tax avoidance transactions. The IRS has gone to great lengths to document these types of transactions, and it is important for any individuals involved in these types of schemes to discuss their situation with a tax attorney. Now that the IRS has taken notice of these types of transactions, it is essential that taxpayers in these situations have experienced representation to handle these tax issues.

Historically, the IRS has allowed for tax deductions of this sort when it was made as a contribution of real property to a qualified organization for the purposes of conservation. These types of contributions are known as qualified conservation contributions. Because of the strong governmental interest in promoting conservation areas, the government has found that these types of donations should be rewarded with a tax deduction. Under the existing tax rules, individuals who make charitable contributions are then able to receive a tax deduction for the contribution of a conservation easemen

More recently, however, individuals have taken advantage of this part of the Tax Code and have sold taxpayers on the idea that their land was worth a much greater amount than the contributions. The promoters, in these cases, would obtain appraisals that inflated the value of the conservation easements based on unrealistic conclusions about the potential of the property. Naturally, the IRS intends to challenge the tax benefits that were received as a result of these overvaluations. Additionally, the IRS may seek to challenge the investors under other rules such as the partnership anti-abuse rule.

Disclosure Required

According to the IRS, investors who have entered into one of these types of transactions after January 1, 2010, will need to disclose the transactions for each taxable year that the individual participated in the transaction.

The IRS is interested in carefully regulating charitable contributions and the purported value of donations. As such, it is highly important for individuals, who make charitable contributions, to understand the tax issues that can arise from a misstatement regarding the contribution.

If you have questions about your contributions and are facing scrutiny from the IRS, we invite you to call the Scammahorn Law Firm at (903) 595-1000.

Why the IRS May Have Targeted Your Return

- Scott Scammahorn

Last year the Internal Revenue Services (IRS) revealed that only 0.84% of all tax returns were audited. This is the lowest level in audits in over a decade.

But taxpayers should never assume that their return is audit-proof.

The IRS has not disclosed why some returns are selected for auditing while others pass through free and clear, but there are some common factors which may increase your chances of being selected for an audit.

You Made More Than One Million Dollars

The lowest percentage of tax returns audited were those who earned anywhere between $25,000 and $199,999. The highest percentage: those who earned over $10 million.

  • Percentage of audited returns for those earning $1 million to $5 million: 8.42%
  • Percentage of audited returns for those earning $5 million to $10 million: 19.44%
  • Percentage of audited returns for earning over $10 million: 34.69%

The IRS has made it no secret that because of budget cuts they have been forced to target high income earners in an attempt to “work smarter”. Their reasoning: they need to look more closely at those with more money – and more money to hide – in order to get the best return on their audit investment.

You Took Substantial Charitable Deductions

Giving money to charities is not only great for society, it’s also a nice tax write-off. But if the donations you made over the past year were substantial when compared to your income, you may be receiving a phone call from the IRS.

If you are providing a charity with a non-cash donation which is valued at $500 or more, a Form 8283 must be filed. Make sure that you receive an appraisal from a qualified professional for all donated valuable property.

You Did Not Report All of Your Income

Each year, the company or companies you work for are required to send the IRS copies of all W-2 forms and 1099s you receive. If the income you report on your tax return doesn’t align with these forms, this can trigger an audit. If you earn income from multiple sources, make sure it is accurately reported on your 1099.

Contrary to what some may say, no return is 100% audit proof. If you have been selected for an IRS audit, contact the Scammahorn Law Firm today. Our accomplished tax attorneys have the experience in tax law necessary to handle the IRS and to protect your rights and assets.

To schedule for a confidential consultation, call (903) 595-1000.

New Documents Support IRS Tea Party Targeting

- Scott Scammahorn

An American “watchdog” organization known as Judicial Watch has released a new batch of what are known as the “302” documents – documents which include detailed narratives of Federal Bureau of Investigations (FBI) agent enquiries. These were acquired through a Freedom of Information Act suit filed by the organization.

In these documents it is revealed that some of Washington’s top IRS officials, including Holly Paz and Lois Lerner, were aware that the agency was targeting conservative and “Tea Party” organizations for two years prior to this information being disclosed in May 2013. This revelation came about in response to a question at an American Bar Association Conference.

The release of these documents support the May 2013 findings which concluded that IRS agents had used inappropriate criteria when reviewing organizations which had applied for tax-exempt status.

IRS Inappropriately Targeting Conservative Groups

The documents revealed that in the summer of 2011 in Cincinnati, Internal Revenue Service (IRS) officials were targeting these conservative groups because of their political affiliation and ideology. Cases were being categorized based on the name of the organization and their ideology rather than the organization’s actual business.

Understanding the Audit Process

It is unlawful for the IRS to target groups based on their name, affiliations and ideology. This also applies to IRS audits filed by business owners and individuals.

What the IRS should do is compare a tax return against what is considered to be the “norm” for similar organizations or individuals. If your case is found to be outside of this “norm”, an experienced auditor should then review it.

At this point your case may be accepted and filed, or the auditor may have questions. A manager will review the questionable items and may accept the return, or return it to the assigned auditor. If the assigned auditor still has questions, he or she will then contact the taxpayer and schedule an appointment.

Standing Up to the IRS

Going up against the IRS is a daunting process, but it is one which you do not need to face alone. The Scammahorn Law Firm has helped American business owners and individuals fight against penalties and reduce fines for several years. Our experience in tax law has allowed us to protect the assets of business and homeowners.

If you have been threatened with penalties, back taxes or are facing an audit, do not panic. You can schedule a confidential consultation with one of our knowledgeable tax attorneys today by calling (903) 595-1000.

Lawmakers Propose New Bill Featuring Limits on Seizing Indebted Worker’s Pay

- Scott Scammahorn

In early July, two lawmakers proposed a bill that aims to put new limits on money that debt collectors can garnish from debtor’s pay and bank accounts. The proposal marked the first time in nearly 50 years that any such bill addressed the issue.

The bill revisits the Consumer Credit Protection Act, which was set in 1968. Named the Wage and Garnishment Equity (WAGE) Act of 2016, the bill outlines significantly reformed protections for debtors, effectively exempting more low-income workers from reduced wages due to garnishment. The bill also seeks to reduce the amount of money collectors can take from bank accounts as well.

Current federal law allows even those who live below the poverty line to have as much as a quarter of their post-tax wages garnished. There is also no limit regarding money taken from bank accounts, and collectors can essentially take an entire paycheck to cover the debt if it has already been deposited.

Representatives from the National Consumer Law Center hailed the legislation as an important, though overdue, step in correcting the inadequate protections provided to working families.

When Can Your Wages Be Garnished?

Typically, creditors are only able to garnish a certain amount of money from wages in order to settle a debt. These wage garnishment laws, sometimes referred to as wage attachments, state that creditors may not use wages to repay any debt that does not involve child support, taxes, alimony or student loans. This is particularly true in the state of Texas, where there are also state laws limiting protections for creditors.

Wage garnishment refers to situations where a court or other government agency sends an order to an employer, requiring your employer withhold a portion of your pay to send directly to the creditor.

A creditor may seek to garnish your wages if you have:

  • Defaulted student loans
  • Unpaid income taxes
  • Court ordered alimony and/or child support

In these cases, any government agency or creditor is able to garnish your wages without receiving a prior court judgment. This may also affect the amount that is garnished as well, depending on the situation.

For many, the sudden garnishment of wages can pose additional struggles, especially in situations involving low income or additional financial burdens, like additional debt.

Tax Litigation in Texas

Are you, or someone you know, dealing with a federal tax-related case or dispute? If so, it is important that you contact a tax resolution attorney, who can evaluate your case as it stands compared to current federal law.

In Dallas and the surrounding communities in Texas, the attorneys at the Scammahorn Law Firm, P.C. specialize in handling federal tax-related issues, including those in need of representation during tax litigation. Our skilled attorneys can work with you to assess your tax debt position and reach a resolution that protects your interests now, as well as well into the future, with the minimum penalty possible.

We can help you today. You do not have to allow your assets to be garnished any further without seeking qualified legal advice. To schedule a preliminary consultation to discuss your case with our attorneys, we welcome your call to the Scammahorn Law Firm P.C. at (903) 595-1000.

IRS Claims Tax Gap Amounts to Hundreds of Billions

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The numbers are in and the IRS has a pretty good idea what the tax gap is for 2008 to 2010. In late April 2016, the IRS announced that the gross tax gap is close to $458 billion (totalling $406 billion net).

What Is the Gross Tax Gap? 

The IRS defines the “gross tax gap” as being comprised of three separate components: 

  1. Underreporting (accounting for $387 billion)
  2. Underpayment (accounting for $39 billion)
  3. Nonfiling (accounting for $32 billion) 

The IRS Does Not Get It Right 100% of the Time

The IRS may be a government agency, but it is not infallible.

Nonfiling: The IRS has stated that many individuals who do not need to file a tax return still do because they are not aware of the requirements. These requirements may change annually but it is still important for individuals to understand when they may or may not need to file. 

Whether or not you need to file each year depends on your: 

  • Filing status (single or married)
  • Age
  • If you are eligible for a tax refund or for the EITC
  • If you are self-employed and made a certain amount of money for that year
  • If you owe social security and Medicare tax on tips which were not reported to your employer

Underpayment: If you are self-employed, then you need to figure out how much you need to pay when tax season rolls around. Doing this four times a year can be difficult, and if you pay less than the IRS thinks you owe, you can be hit with a penalty when you do file your return. A tax attorney will see if you qualify for an exception and if it is even necessary to pay the amount that you are. 

Underreporting: The IRS has a variety of ways to verify the income which a taxpayer reports on his or her return. There are times when taxpayers may misidentify what is considered to be “income” and not report it, and there are times when the IRS may have incorrect information. 

If you have been threatened with penalties by the IRS, you are not alone, and the Scammahorn Law Firm is here to help. Scott Scammahorn and his team provide confidential professional tax law services across all of Texas and are available to take your call at (903) 595-1000.

IRS Targets and Penalizes Innocent Dairy Farmers

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It was in the winter of 2012 when dairy farmers Randy Sowers and Karen Sowers enjoyed a nice profit of $12,000 earned at a weekend farmer’s market. The couple, advised that making deposits of over $10,000 would involve time consuming paperwork at the bank, agreed with the bank teller that they would deposit the money in smaller quantities. 

The IRS, however, claimed the proceeds were from criminal activity and in February 2012 seized close to $63,000 worth of cash and assets from the already cash-strapped Maryland dairy farmers.  Also, the structuring of deposits in order to avoid the $10,000.00 reporting threshhold is a criminal offense, regardless of whether the source of the proceeds is legitimate or not.

“If I Wanted to Hide It, I Would Have Put It In a Can” 

The farmers’ actions came under scrutiny due to federal laws, which were intended to target criminals who deposit large sums of money in smaller cash increments to evade the authorities. But as Randy Sowers stated, he thought that he and his wife’s actions were “very legitimate” and that if they wanted to hide their money they would have “put it in a can.” 

“We have trouble paying our bills,” Sowers said. “[We] don’t need the government coming and taking money from us.”

A Settlement Reached – But It Isn’t Enough 

The couple settled with the government for fear of losing the full amount seized and possibly more assets. They received approximately $33,500 at the time. But the couple are now fighting back and in a letter recently filed in mid-February 2016 to the Justice Department stated that they want the rest of their money back. 

Hire Legal Assistance to Avoid Lengthy Disputes 

The Sowers’ may have been able to avoid a lengthy dispute and ensure that they received their funds in a timely manner if they had hired a tax attorney to review the case and defend them. If you are facing a settlement situation or have received any paperwork form the IRS, it is imperative to speak with a tax professional like Scott Scammahorn.

Prior to meeting for a consultation at the Scammahorn Law Firm, gather all correspondence which you have received from the IRS as well as any tax-related documentation. We will analyze the data and advise you of your rights and how to best proceed. Your attorney will handle all correspondence from the IRS from that point onward and will work vigilantly to ensure the best possible outcome. 

We invite you to call us at the Scammahorn Law Firm today, to schedule a consultation at (903) 595-1000.

Avoiding Dangerous IRS Employment Tax Traps

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During the course of the last decade, the Internal Revenue Service (IRS) has experienced a significant decline in collectors – nearly 30 percent.

However, the IRS currently estimates that nearly $60 billion is owed from outstanding employment taxes – a staggering development, considering the fact that tax withheld by employers accounts for roughly two thirds of total IRS revenue collection. 

It is important to note that employers and other responsible parties within a business can be held liable for any withheld payroll taxes that are not turned over to the IRS in a timely manner. As a result, employers must be increasingly wary of tax traps, which the IRS may use to establish a criminal employment tax case. 

Missed Payments? Act Quickly 

Over the last few years, the IRS has implemented several new civil programs for early notification of delinquent taxpayers. The measures, meant to help close the gap between noncompliance and resolution, include the delivery of a civil letter that could be used to prove knowledge of unpaid taxes. 

To combat noncompliance, and better inform employers of any outstanding balances, the IRS is rolling out the Electronic Federal Tax Payment System (EFTPS). This program provides employers the opportunity to reconcile tax issues and avoid the all-too-disastrous scenario of a lengthy, and costly tax battle. 

Avoid Liability Traps

When employment tax issues arise, the IRS will typically conduct interviews with business owners regarding any knowledge of outstanding employment taxes. Such interviews are committed to writing, and are signed by the business owner – a form known as IRS Form 4180. Unfortunately, signing the document confirms, in the employers own words, that there are unpaid employment taxes.

Because the Department of Justice (DOJ) uses such forms during the course of criminal prosecution, those dealing with outstanding employment tax sums, or those who have no defense for the penalty, run the risk of incriminating themselves. 

Do Not Claim Withholding On Unpaid Taxes

Another common mistake that employers make with respect to employment tax is to claim tax withholding on a W-2, on taxes that they know were never paid to the IRS. This is considered egregious behavior by the DOJ, so it’s important that business owners, or knowledgeable preparers, avoid claiming withholding in such situations. 

Whether you are struggling from unpaid employment taxes, or face hefty penalties as a result of a tax dispute, a qualified tax attorney can work with you to solve your IRS problems. 

Contacting a Tax Attorney 

If you have an IRS tax issue, it is important that you do not delay in consulting with an attorney. In and around Tyler, Texas, the tax law specialists at the Scammahorn Law Firm, P.C. have the legal knowledge and litigation experience necessary to successfully rectify IRS tax issues, including employment tax disputes. No matter what issues you face, our legal team will support you and advocate for a favorable outcome, avoiding as many penalties as possible. 

Our attorneys are ready, willing and able to advocate on your behalf today. To get started, we welcome your call to the Scammahorn Law Firm P.C. at (903) 595-1000 to schedule your initial consultation.

Winning IRS Litigation with Help from Statute of Limitations

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Taxpayers often fear the IRS for its power to send notification letters of audit or examination of a taxpayer’s returns. The IRS inquiry is often dreaded by companies and individual taxpayers because the examination can result in the assessment of higher taxes, the imposition of penalties, or worse, criminal referral for fraud. But the power to audit tax returns has a time limit known as a statute of limitations, generally for a period of 3 years.

When the statute of limitations applicable to a specific tax period has expired, the IRS can no longer examine your records for potential inaccuracies or errors in tax returns filed in previous years. The typical time limit for the IRS is 3 years, but in certain cases, the statute of limitations may be extended or may not begin to run.

Longer Statute of Limitations 

The IRS may have more than three years to audit your tax returns in any of the following cases:

  • If there is a failure to report more than 25% of your income
  • If you never filed a return
  • If you omit to file certain tax forms
  • If you fail to report foreign income amounting to more than $5,000 

In many of the mentioned cases, the statute of limitations may be 6 years. And if the IRS discovers that you have unfiled tax returns, you may be exposed to criminal indictment. 

While waiting for the statute of limitations to expire, it’s absolutely important to keep good records of all your tax returns. A key rule of thumb is to retain tax and financial records for up to 7 years but for property records and documents relating to property improvements and home remodeling, the advice is to keep them indefinitely.   Property records may be used as basis for tax returns when selling property later.

Paying Attention to IRS Notices 

When receiving a notice from the IRS informing you of IRS audit or intent to levy, it’s important to act immediately by speaking to an experienced IRS lawyer.  Your tax attorney can examine the notice, check for the remaining period of the applicable statute of limitations, and promptly send a response or dispute any assessment made on the IRS notice.

If you’re a taxpayer who needs IRS tax advice in Tyler or in the East Texas area, the Scammahorn Law Firm has 16 years of tax litigation experience, helping troubled clients manage their IRS issues through remedies such as offers-in-compromise and installment agreements. 

You are invited to call us for a confidential consultation at (903) 595-1000.

Situations When Tax Software May Land You in Hot Water

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Tax preparation software is a wonderful technology that has significantly reduced the amount of paperwork taxpayers need to fill out during tax time each year. Although this software can help users make fewer mistakes on their annual tax returns, there are some issues that continue to appear year after year, and which could result in unnecessary disputes or which could land you in Tax Court.

Miscalculations 

Bad math is at the helm of the most common tax return errors. Not only can miscalculations reduce your tax refund or unjustly increase the amount of money you owe this tax season, but can also result in you needing to attend Federal Tax Court or having to deal with unpleasant IRS negotiations. 

Erroneous Credits or Deductions 

E-filing software makes this process a lot easier than those who may be filling out their paperwork by hand. But mistakes still happen as filers attempt to figure out: 

  • Standard deduction
  • Child and Dependent Care Credit
  • Earned Income Tax Credit

Tax filing software can be incredibly convoluted and difficult to navigate if you are not a standard employee. For example, one common mistake made is when those who are 65 years of age or older, or those who are blind, do not claim their higher standard deduction. 

Changes on Your Name or SSN 

If you are newly married or divorced, or have changed your social security number, it is important to let Uncle Sam know as soon as possible so that the IRS is able to process your tax information without unnecessary delay. Also be sure to review all information provided to ensure that you have not made any typos which could negatively affect your return. 

Keep in mind that your software may have retained your information from the previous year and will need to be changed.

Do You Need a Tax Attorney? 

The IRS has the power to impose penalties on American taxpayers every year, but contrary to what you may believe, the IRS is not always right. If you have been targeted by an IRS audit or have received letters demanding action, you need to act quickly to protect your assets and your finances.

The Scammahorn Law Firm will advise you on how the law can benefit your case and will challenge the IRS on its findings, file appeals, and represent you in a lawsuit when necessary. 

We invite you to call us to speak to an experienced tax attorney today at (903) 595-1000.

Can the IRS Levy Wages to Cover Debt in Texas?

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In the state of Texas, creditors may not garnish individual wages unless they meet set criteria.  Unfortunately for taxpayers, this law does not apply to the Internal Revenue Service. 

According to current Texas wage garnishment laws, otherwise known as wage attachments, those who owe unpaid taxes can have their wages levied without requiring a prior court order. The amount garnished varies on a case-by-case basis and depends on a number of factors, including how many dependents an individual has, as well as the deduction rate.

Protecting Your Assets 

Since the IRS stepped up efforts to resolve collections and prosecutions of those who fail to file returns or owe back taxes, it has become increasingly common for the IRS to levy bank accounts, wages or other assets, in order to resolve an individual’s tax debt. 

It’s important to note that this is not restricted to income or employment tax. Those with unpaid state or local taxes can also see their assets levied in order to reconcile outstanding tax disputes. 

For many people, the sudden garnishing of wages or other assets can pose significant challenges, especially in cases where income or outstanding debt are a substantial factor. Additionally, those who receive wages from a source outside of their home state run the risk of having wages levied in either state, which unfortunately comes down to a creditor’s judgment.

No matter what situation you find yourself in, one thing is clear – you need your wages in order to provide for yourself and your family. It’s important to remember that resolving your IRS tax dispute does not need to cost you everything – there is another way.

Resolving Your Tax Issues 

If you or someone you know has accrued back taxes and has experienced the garnishing of wages, bank accounts or other financial assets, it is in your best interest to contact a tax resolution attorney. 

In Tyler, Texas and the surrounding communities, the tax attorneys at the Scammahorn Law Firm, P.C. assist clients dealing with a broad range of tax issues, including back taxes and wage garnishment. Our skilled attorneys will work with you to examine your tax debt situation and achieve a resolution that protects your interests now, and in the future, with the minimum possible penalty.

The time to act is now – do not allow your assets to be levied any further without taking professional advice. To schedule an initial consultation to assess your case, we invite you to call our attorneys at the Scammahorn Law Firm P.C. at (903) 595-1000.