Willi Law Office, LLC

Should you represent yourself against the IRS?

2025-02-18T22:40:20Z

The IRS may notify you of an audit, tax dispute or collection action. These issues, if not resolved quickly, can lead to serious complications and financial risks. It is important to understand why you may need to defend against the IRS’s allegations and whether self-representation is the right choice. Here is what you should know:

Why the IRS may be after you

The IRS can enforce certain tax laws to examine tax issues or possible attempts of criminal activity. There are a few common reasons the IRS may contact you, including:

Audit: The IRS may contact you because there was an issue or questions about a tax return. The IRS may request additional evidence to examine the issue.
Dispute: The IRS may be responding to a dispute you filed against the amount of taxes owed or another issue.
Collections: The IRS may be seeking to collect on unpaid taxes, which could lead to the risk of imposed liens, bank account levies or wage garnishments.
Criminal investigations: The IRS may be investigating allegations of criminal activity, such as tax evasion or fraud.

Failing to take action could lead to larger issues. It is often crucial to approach each issue with care and understanding of your legal options.

The risks of self-representation

You have several legal rights as a taxpayer when responding to any issues brought by the IRS. For example, you have the right to have a clear explanation about any IRS procedures and laws and the right to dispute the IRS’s actions. You can represent yourself when challenging the IRS – but it is seldom the best way to go. Self-representation against the IRS may seem cheapest and easiest. However, several issues can arise through self-representation. Laypeople rarely have a clear, comprehensive understanding of tax laws and missing deadlines or failing to collect the correct paperwork can be hugely problematic. If an audit is unfavorable, you could end up agreeing to a settlement that is inappropriate for your situation. Formal representation, in essence, protects you from dangers in a legal landscape that is Byzantine, at best. When it comes to protecting your financial future, it may be wise to reach out for guidance to learn more about your legal rights and defend yourself from serious consequences.

3 reasons taxpayers need representation during an audit

2025-02-18T22:48:30Z

Receiving a letter from the Internal Revenue Service (IRS) stating that an audit is imminent can be a frightening experience. Many taxpayers initially panic. Then, instead of taking every reasonable action they can to protect themselves, they may rush through the process of responding and put themselves in a more perilous position. Technically, every person facing an audit has the right to retain legal representation while interacting with the IRS. Doing so is generally advisable, as small mistakes can have major implications for those accused of violating tax law. The following are some of the most compelling reasons to secure the support of a lawyer when facing an audit.

The complexity of the tax code

Contrary to urban legends, the federal tax code is not 70,000 pages. However, it is roughly 2,600 pages of dense legal language that changes frequently. The average person simply cannot familiarize themselves with the entirety of the federal tax code. Even if they attempt to read it, they may not be able to understand it. An attorney familiar with the federal tax code can help clarify a difficult situation for their clients.

The emotions that come with an audit

As previously mentioned, many people feel an intense sense of dread or panic when facing an upcoming audit. Those emotions can undermine rational thinking. They can also compromise an individual's behavior during communications with the IRS. An attorney is capable of remaining calm and professional in difficult situations. They can advocate for their clients when their clients may not be able to remain calm and assert themselves effectively.

An understanding of the options

There are multiple different types of audits. There are also multiple different solutions for underpaid taxes and other tax controversies. From offers in compromise to strategic defenses that show that no underpayment occurred, there are many different solutions that can help those facing an audit. A lawyer can educate their clients about what to expect during an audit and about the different solutions they could potentially utilize to resolve the tax controversy that they face. Taxpayers who secure the right support may ultimately be able to recover from an income tax issue more quickly than those who try to handle an audit on their own. Those facing any kind of tax controversy have the right to legal representation during their audits and any other interactions they have with the IRS.

Why IRS audit representation is essential

2025-02-18T23:03:51Z

The mere thought of a tax audit can send chills down most people's backs -- and there's no question that the Internal Revenue Service (IRS) audit process is stressful, complicated and overwhelming for most people. Audits can happen for all kinds of reasons. You can be randomly chosen, or discrepancies in your reported income and excessive deductions can trigger the agency's attention. Either way, an audit typically begins with a letter informing you that you or your business is under review. Typically, you're given 30 days to respond to the notice -- and you should spend some of that time seeking informed legal guidance. Here's why IRS audit representation is essential:

1. You need someone familiar with tax laws and procedures

The tax laws in this nation are among the most complex in the world, and they can be very hard for a layperson to navigate. Professionals, including tax attorneys and accountants, understand the nuances of tax law and can interpret the IRS's requests correctly (and narrowly) so to best safeguard your interests.

2. You want to minimize the potential for errors and miscommunication

A simple mistake or miscommunication can escalate the situation and turn something benign into trouble. An experienced representative can make sure that your correspondence with the IRS is accurate -- and they become your intermediary, able to translate IRS language into understandable terms that you can follow.

3. You need to protect your rights in this situation

Most taxpayers are unaware of their rights during an audit -- such as the right to appeal decisions. IRS audit representation helps make certain that you are treated fairly and your rights are respected. If the audit doesn't go your way, your representative can immediately initiate an appeal or help you approach the IRS with the idea of crafting a way to minimize the consequences of any additional tax liabilities that are assessed.

4. You can reduce the stress you experience and minimize time waste

An audit can be both an emotional drain and time-consuming. If you're in business for yourself, that can have significant repercussions for your company. With the right representation, you can delegate the burden of the process to another so that you can concentrate on keeping your business operational. Ultimately, with professional representation, you are more likely to achieve a positive outcome. This is particularly true if you are unsure why you are being audited, there is a significant sum of money involved, you are worried you may have made errors on your tax returns or you're accused of serious tax violations or fraud.

How can you settle your tax debt for less?

2024-09-23T18:55:03Z

Tax debt can create serious financial stress, especially if you're unable to make full payments. For Ohio residents facing significant tax debt, the Internal Revenue Service offers a potential solution: the Offer in Compromise (OIC) program. This arrangement allows taxpayers to settle their debt for less than the total amount they owe. Although not everyone qualifies, exploring this option can be worthwhile if you're struggling to manage a large tax burden.

How does an offer in compromise work?

An OIC functions as a negotiated agreement between you and the IRS. If the IRS approves your offer, you can settle your tax debt by paying a reduced amount. To apply, you must submit a detailed application that includes financial documentation outlining your income, assets, and monthly expenses. The application requires a non-refundable fee, although individuals who meet certain low-income guidelines may qualify for a fee waiver. If you get approved, you can choose between paying the agreed-upon amount in a lump sum or spreading payments over time, depending on the terms of the agreement.

Who qualifies for an offer in compromise?

The IRS primarily bases qualification for an OIC on your ability to pay. If you cannot pay the full amount of your tax debt or doing so would cause severe financial hardship, you may qualify. You must also file all required tax returns and avoid bankruptcy proceedings. The IRS evaluates your income, expenses, assets, and overall financial situation to determine whether to approve your offer. They will only accept if they believe the reduced payment represents the most they can realistically collect from you. To help you determine whether you should apply, the IRS provides an online tool that you can use to assess your eligibility. While no one has guaranteed guaranteed approval, an Offer in Compromise provides an opportunity to reduce your overall tax liability. If the IRS accepts your application, it can significantly lighten your financial burden and help you regain control of your tax debt.

How to prepare for an IRS audit

2024-06-27T13:50:18Z

Facing an IRS audit can feel overwhelming, but preparation can make the process smoother. Follow these steps to get ready and ensure everything goes as smoothly as possible.

Gather all necessary documents

According to the IRS, the agency closed more than 582,000 field audits in 2023. The first step in preparing involves collecting all relevant documents. The IRS may request specific items like tax returns, receipts, bank statements and other financial records.

Review tax returns thoroughly

Carefully review the tax returns for the years under audit. Understanding what the IRS may question can help prepare appropriate responses. Make sure the figures match the supporting documents.

Understand the audit notice

Read the audit notice carefully to understand what the IRS wants to examine. The notice will specify the tax year(s) under review and the items of interest. Pay close attention to deadlines and any specific instructions.

Be ready to explain discrepancies

Prepare explanations for any discrepancies or unusual items the IRS might find. Honest mistakes can happen, and having a clear, reasonable explanation can help address potential issues. If certain items on the tax return stand out, prepare to justify them with appropriate documentation and explanations.

Organize a timeline

Create a timeline of events and transactions that pertain to the audit period. This can help in understanding the sequence of financial activities and their relevance. A timeline can also assist in recalling details, providing a clearer picture during discussions with the IRS.

Practice good communication

Effective communication plays a key role during an IRS audit. Respond to IRS requests promptly and courteously. Clear and concise communication helps build a cooperative relationship with the auditor. Avoid providing more information than what the IRS asks for, as this can complicate the process.

Stay calm and composed

Maintain a calm and composed demeanor throughout the audit process. Anxiety can lead to mistakes or omissions. Staying calm helps in thinking clearly and responding accurately to questions or requests from the IRS.

Keep a copy of everything

Make copies of all documents you submit to the IRS. This ensures there is a record of everything. Keeping a detailed record can protect against future disputes or misunderstandings. An IRS audit does not have to be a terrifying experience.

Deciphering employment taxes for sole proprietors

2024-04-02T14:39:58Z

Although operating a business on your own has a lot of upsides, taxation is not one of them. All sole proprietors must pay both income taxes and self-employment taxes on the total income of their businesses. Understanding these tax obligations is necessary for sole proprietors so they do not run afoul of the IRS.

Payroll tax

This is a tax withheld from an employee's wages by an employer to fund various government programs. Employers (including self-employers) are responsible for withholding federal income tax, Social Security tax and Medicare tax from their employees' paychecks. These taxes are then remitted to the appropriate government agencies.

Self-employment tax

Self-employed individuals, including sole proprietors, must pay this tax on the net earnings from their self-employment. It consists of two parts: Social Security tax and Medicare tax. While employees who work for other people split these taxes with their employers, as both employer and employee, self-employed individuals are responsible for paying the full amount.

Impact on sole proprietors

For sole proprietors, understanding the difference between payroll tax and self-employment tax is key to managing their finances and complying with tax regulations. Since sole proprietors are both the employer and the employee of their businesses, they must pay self-employment tax on their net earnings in addition to any payroll taxes they must withhold for employees. If you have any concerns about your sole proprietorship’s compliance with payroll taxes and other tax obligations, seeking professional guidance is often the smartest way to ensure you properly address any potential problems.

Joint tax troubles: the 3 types of Innocent Spouse Relief

2024-01-19T16:18:23Z

Imagine you and your spouse file taxes jointly but your spouse does the filing and either makes a significant mistake, fails to report income or claims deductions that are not accurate. You might think that because you filed jointly, you are liable equally and if your spouse is at fault, you are also at fault, right? Not necessarily. Sometimes, a spouse might make mistakes in their taxes or state dishonest information on a joint tax return. The Internal Revenue Service (IRS) is aware of the possibility that this might happen (and it does) so it has a special way of protecting the spouse who did not know what was going on: Innocent Spouse Relief.

The 3 types of innocent spouse relief

There is more than one type of innocent spouse relief, depending on what happened and why. The IRS understands these situations happen, and unfortunately, they happen more often than you would expect.

Classic innocent spouse relief

This is the most common type of relief request, and it simply means explaining to the IRS that you did not know what your spouse was up to and asking the IR to not hold you, the innocent spouse, accountable for your spouse’s actions.

Separation of liability

In situations where you and your spouse have your own separate income, deductions and financial landscape and your spouse’s actions are causing tax troubles, you can ask the IRS to be financially separate from your spouse for tax purposes. Here, the IRS divides up tax responsibilities and makes sure each spouse is liable only for what happened on their financial turf.

Fair or equitable relief

This special provision allows the innocent spouse to ask the IRS for help when they face tax-related unfairness because of the actions of their spouse. When the innocent spouse cannot request help via the other two types of innocent spouse relief, they can apply for this type of relief. In fair or equitable relief, the innocent spouse applies to the IRS, explaining their situation. The IRS investigates and decides what is fair based on the facts. If your spouse’s tax adventures leave you with a tax problem on your hands, the IRS has special provisions to help you. You are not alone, and you are not the first spouse to whom this has happened. In fact, it happens more often than you think. For this reason, it is important for both spouses to be knowledgeable of their tax status and financial landscape, including their annual tax returns, so they can avoid misunderstandings and unnecessary stress between them, including possible trouble with the law. If you must file for innocent spouse relief, the IRS has a special form that covers all three types of relief.

New IRS Voluntary Disclosure Program Lets Employers Pay Back Employee Retention Credits at A Discounted Rate

2024-01-11T21:14:18Z

The IRS has launched a new Voluntary Disclosure Program aimed to help businesses that want to pay back the money they received after filing erroneous Employee Retention Credit (ERC) claims.

As part of this expanding effort for employers that claimed an erroneous or excessive ERC, the IRS also announced that it is sending up to 40,000 letters with proposed tax adjustments that will recapture the erroneously claimed ERC. These mailings are currently just for tax year 2020, and work continues for tax year 2021, with additional mailings planned. If the IRS identifies an employer that has received excessive or erroneous ERC, the agency will reclaim that ERC through normal tax assessment and collection procedures.

Employers interested in the ERC Voluntary Disclosure Program must apply by March 22, 2024. The program is not available to employers under criminal investigation or employment tax examination, or for employers who have received a demand for repayment.

Employers that the IRS accepts into the ERC Voluntary Disclosure Program will only be required to repay 80% of the credit they received. If the IRS paid interest on the employer's ERC refund claim, the employer doesn't need to repay that interest. Employers who are unable to repay the required 80% of the credit may be considered for an installment agreement on a case-by-case basis.

The IRS will not charge program participants interest or penalties on any credits they repay. However, if the employer is unable to repay the required 80% of the credit at the time of signing their closing agreement, then the employer will be required to pay penalties and interest in connection with entering into an installment agreement.

To qualify for this program, the employer must provide the IRS with the names, addresses, and telephone numbers of any advisors or tax preparers who advised or assisted them with their ERC claim and details about the services provided. Further qualifications and program details are in Announcement 2024-3 posted on IRS.gov.

Finally, the IRS continues to urge employers with pending ERC claims to consider a separate withdrawal program that allows them to remove a pending ERC claim with no interest or penalty.

Willi Law Office, LLC has been providing personalized legal services to individuals and businesses in Ohio for over 20 years.

IRS Delays Revised 1099-K Reporting Another Year – Planned $5,000 Threshold for 2024

2023-11-21T21:38:00Z

Following feedback from taxpayers, tax professionals and payment processors and to reduce taxpayer confusion, the IRS released Notice 2023-74 announcing a delay of the new $600 Form 1099-K reporting threshold for third-party settlement organizations for calendar year 2023. Congress changed the reporting rules for payment card and third party network transactions as part of the American Rescue Plan Act of 2021. Previously, transactions exceeding $20,000 with 200 sales-related transactions were required to be reported via form 1099-K. The new threshold is $600, regardless of the total number of transactions. The IRS temporarily delayed the new requirement last year. Given complexity of the new provision, the large number of individual taxpayers affected and the need for stakeholders to have certainty with enough lead time, the IRS is planning for a threshold of $5,000 for tax year 2024 as part of a phase-in to implement the $600 reporting threshold enacted under the American Rescue Plan. Following feedback from the tax community, the IRS is also looking to make updates to the Form 1040 and related schedules for 2024 that would make the reporting process easier for taxpayers. Reporting requirements do not apply to personal transactions such as birthday or holiday gifts, sharing the cost of a car ride or meal, or paying a family member or another for a household bill. These payments are not taxable and should not be reported on Form 1099-K. However, the casual sale of goods and services, including selling used personal items like clothing, furniture and other household items for a loss, could generate a Form 1099-K for many people, even if the seller has no tax liability from those sales. Questions regarding the reporting and taxability of income reported on Form 1099-K should be directed to your tax preparer or your personal financial advisor. The Willi Law Office, LLC has been providing personalized legal services to individuals and businesses in Westerville and Central Ohio for over 20 years.

Have Your Cake and Eat it Too! Use SGOs to Direct Your Ohio Tax Dollars to Education

2023-11-14T19:27:02Z

Individual Ohio taxpayers filing form IT-1040 can receive a dollar-for-dollar reduction in their Ohio tax liability via a non-refundable tax credit for monetary donations made to eligible Ohio scholarship granting organizations (SGOs). The tax credit equals the lowest of the following:

$750 ($1,500 if filing jointly);
the total amount donated to the SGO during the tax year; or
your Ohio income tax liability before any refundable tax credits.

Beginning this year, the SGO tax credit may also be claimed for donations made on or before the unextended tax return due date (April 15, 2024 for tax year 2023), but the same contribution cannot be used to claim the credit in two tax years. There are currently 43 certified SGOs in Ohio. The Ohio Attorney General maintains a list of certified SGOs on their website: https://charitable.ohioago.gov/Scholarship-Granting-Organization-Certification/List. Some SGOs may serve a single school, while other SGOs may serve a group of schools. For example, the Emmaus Road Scholarship (www.emmausroadscholarship.org) services all primary and secondary Catholic schools in the Diocese of Columbus. Although you may be able to designate a specific school when donating to SGOs serving a group of schools, you cannot designate your gift to a particular student. If you do choose to donate to an SGO, please keep a record of your donation, as supporting documentation will need to be included with your Ohio income tax return. Willi Law Office, LLC, has been providing personalized legal services to individuals and businesses in Central Ohio for over 25 years.