Los Angeles California Tax Attorney Blog

California Tax Attorney:

Here is a quick summary of a recent US TAX COURT case against the Internal Revenue Service to challenge the taxpayer’s right to deduct donations to a Catholic Church. The case involves a married couple who got audited by the Internal Revenue Service concerning donations they deducted on their Internal Revenue Service Form 1040 tax return.

Anonymous U.S. Tax Petitioners v. COMMISSIONER OF Internal Revenue Service
Docket No. 6851-08. Filed May 2010.

Tax Problem
Can an American taxpayer deduct as charitable contributions of $25,050 in wire transfers to his wife’s relative who distributed the money for the benefit of the Catholic Church of a foreign country on their Internal Revenue Service Form 1040?

Can a taxpayer deduct the airfare expense incurred while rendering services for a Catholic church in a foreign country on their Internal Revenue Service Form 1040?

APPLICABLE TAX CODE SECTION

Internal Revenue Code §170 allows taxpayers to claim a deduction for a charitable contribution if the contribution is made to or for the use of a qualified organization.

Internal Revenue Code §170 (c)(2) identifies an eligible recipient of a charitable deduction as “a corporation, trust, or community chest, fund, or foundation created or organized in the United States or under the law of the United States”.

CAN YOU DEDUCT DONATIONS MADE TO CHARITABLE ORGANIZATIONS IN A FOREIGN COUNTRY?

Taxpayers claimed the charitable contribution deductions on their joint IRS Form 1040 Income Tax Return. Taxpayers also claimed a charitable contribution deduction for the airplane ticket taxpayer wife purchased to travel to her native country and provide services to Catholic churches of that foreign country. The IRS issued a notice of deficiency disallowing certain charitable contribution deductions. Most of the disallowed deductions originated from taxpayer wife’s donations and charity work for the benefit of Catholic churches in a foreign country. Taxpayers filed a tax court petition appealing the report issued by the IRS Audit with the US Tax Court .

Taxpayer’s wife was born in a foreign country. Her parents were devout Catholics. Her father served as an officer in that country’s army during the conflict with the guerilla forces. Taxpayer wife was a young girl when the guerrilla forces initiated a military campaign. Taxpayer wife’s uncle was a Catholic priest in her hometown. When the guerrilla forces seized her hometown, taxpayer wife witnessed over 400 of her fellow Catholics, including her uncle and other citizens of her hometown, being buried alive. The guerrilla forces destroyed much of her hometown, including the Catholic Church. The foreign country’s government eventually fell. Taxpayer wife and her family later escaped from their country to the United States. Taxpayer wife later married U.S. taxpayer. She is a member of a church that belongs to the local Catholic diocese near her home in Texas.

Taxpayer’s wife completed her college education and was hired as an engineer at an international corporation. After completing college she returned to her native country and witnessed extreme poverty. Her experience motivated her to contribute money and services to help rebuild Catholic churches in that country. These Catholic churches provide food, education, and shelter to the poor. During one of her trips to her native country, the local police detained and interrogated taxpayer’s wife about her activities in her hometown.. The police also informed taxpayer’s wife that they had been monitoring her whereabouts in the country and were aware of her family’s support for the former government.

Fearing for her life, taxpayer’s wife devised a plan to disguise her contributions to Catholic churches in her native country. She would wire the money to the personal bank account of her mother’s cousin (cousin) who lived in taxpayer wife’s original hometown. The cousin then transferred the money to selected Catholic churches in that country.

UNITED STATES TAX COURT DID NOT ALLOW TAXPAYERS TO DEDUCT DONATIONS TO A FOREIGN CHARITABLE ORGANIZATION
Taxpayers argue that the ultimate beneficiary of the wire transfers was the Roman Catholic Church, a qualified donee under Internal Revenue Code §170(c)(2), and that taxpayer wife thus made the wire transfers to or for the use of a qualified organization.

Taxpayers claim that the Catholic Church is a universal organization, and therefore Catholic churches in taxpayer wife’s native country are qualified as donees under Internal Revenue Code §170. The Tax Court found no basis as to if the Catholic churches in that foreign country to which taxpayer wife’s wire transfers were distributed were created or organized in the United States or under the laws of the United States in compliance with Internal Revenue Code . The language of Internal Revenue Code §170(c)(2) is explicit, and the Tax Court must follow such plain language.

Regarding the airfare expense deducted on the IRS Form 1040 Income Tax Return for Individuals , taxpayers assert that the unreimbursed expenditure incident to taxpayer wife’s services should be deductible under Internal Revenue Code §170 because petitioner wife worked on behalf of several qualified organizations.

Nonetheless, taxpayers have failed to show that any of the Catholic churches in the foreign country to which taxpayer wife’s rendered services is a qualified organization within the meaning of Internal Revenue Code § 170(c)(2). Taxpayer wife did not render services in the foreign country under the direction of, or to or for the use of her local church or the local diocese. The record shows only that her priest at her local church had some awareness of her work in her native country. Nor is there any evidence that petitioner wife provided those services.

US Tax Court found taxpayer wife’s testimony to be sincere. However, taxpayers have failed to prove that they contributed to a qualified organization under Internal Revenue Code §170 . Tax Court has held in favor of the Internal Revenue Service .

Los Angeles Tax Attorney:

California Income Tax - Franchise Tax Board FTB released

its annual list of top 250 California taxayers who haven't paid their taxes.

Tax Debt - Top 250 Honor Roll List

Highest Unpaid Tax Debt: $13,120,479
Lowest Unpaid Tax Debt: $ 290,964

Notable Celebrity:
Pamela Anderson (Website:http://pamelaanderson.com/)
Woodland Hills, CA 91367
Income tax due - $ 493,144.68 - 04/07/2009

According to the Franchise Tax Board FTB ,

Vast majority of individual and business taxpayers file their return and pay their lawful tax liability. Those who fail to pay the taxes they lawfully owe contribute to the tax gap. The tax gap is the difference between what taxpayers owe and what they voluntarily pay. As a result, an increased tax burden is passed on to those who pay what they owe. Closing the tax gap is in the best interest of all Californians.

FTB tries to collect taxes through tax liens, tax levy and wage garnishment. As part of the collection process, FTB annually publish the Delinquent Taxpayers list on their website Franchise Tax Board FTB to "encourage" tax payment compliance.

The FTB list shows the top 250 individual and business taxpayers with state income tax liens where the total balance owed is greater than $100,000. In most instances, taxpayers who owe to the FTB also owe even larger tax debt to Internal Revenue Service (IRS) Many of these taxpayers could benefit from either a Tax Bankruptcy or Offer in Compromise to resolve their tax situation.

Los Angeles Tax Attorney:

Here is a quick summary of a recent US TAX COURT case against the Internal Revenue Service to challenge the taxpayer’s right to deduct tax losses from a “S” Corporation. The tax case involves an attorney who claimed a loss from his incorporated law practice on his individual IRS Form 1040 tax return. IRS charged taxpayer with penalties and interests based on improper tax deduction.

R.WEISBERG et al v. COMMISSIONER OF Internal Revenue Service

Tax Problem
Is a taxpayer entitled to deduct a loss from his S corporation as a shareholder?

APPLICABLE TAX CODE SECTION

Internal Revenue Code §1363(a). A qualifying small business corporation that makes the proper election is generally not subject to income tax. Rather, its items of income, deductions, credits, and losses pass through to its shareholders, Internal Revenue Code §1366(a)(1), who then claim those items on their own income tax returns.

Internal Revenue Code §1366(d)(1). However, an S corporation shareholder may not claim a loss deduction greater than his basis in the S corporation, with “basis” in this context consisting essentially of his investment in the corporation. A taxpayer who claims a loss from a S corporation must establish his basis in the S corporation.

Internal Revenue Code §61 (a) includes in gross income “all income from whatever source derived” unless excluded by a specific provision of the Code.

CAN YOU DEDUCT LOSSES FROM YOUR CORPORATION?

Taxpayer, who is an attorney, owned shares in an S corporation and in 2000 personally guaranteed a line of credit to the corporation. The S corporation incurred losses in 2003, and taxpayer deducted part of those losses on his 2003 IRS Form 1040 Income Tax return. In March 2004 taxpayer took out a loan and paid off the corporation’s line of credit in the amount. The IRS disallowed the 2003 loss on the grounds that taxpayer had insufficient basis in the S corporation and determined a tax deficiency, a late-filing addition to tax, and an accuracy-related penalty.

TAXPAYER NEEDS TO ESTABLISH TAX BASIS IN THE CORPORATION BEFORE ANY DEDUCTIONS FOR TAX LOSSES ON IRS INDIVIDUAL TAX RETURN

The US Tax Court and tax audit records contained no information concerning taxpayer’s basis in his S corporation before 2000. In that year he personally guaranteed a line of credit for the firm. Under certain conditions, debt can contribute to a shareholder’s basis in an S corporation, but those conditions are not satisfied in this tax court case. US Tax Court has held that mere shareholder guaranties of S corporation indebtedness generally fail to satisfy the requirements of section Internal Revenue Code §1366(d)(1).

No form of indirect borrowing, including a guaranty, gives rise to indebtedness from the corporation to the shareholders for such purpose until and unless the shareholders pay part or the entire obligation. US Tax Court also held that the mere guaranty of a loan does not involve any economic outlay. Until the guarantor pays the obligation, the guarantor does not have an actual investment.

Taxpayer’s guaranty of the line of credit did not, by itself, increase his basis in the S corporation. Consequently, US Tax Court had no evidence that in 2003 he had a basis in any amount. In 2004 taxpayer incurred his own personal loan and used it to pay off the firm’s line of credit. It may assumed that by doing that act taxpayer did increase his basis in the S corporation per Internal Revenue Code §1366(d)(1). However, the year in issue here is 2003, and that act in 2004 did not increase his basis in 2003. Consequently, taxpayer has not shown that he is entitled to claim any portion of the loss in 2003. Overall, taxpayer’s guaranty of the S corporation’s line of credit did not increase his basis in the S corporation per Internal Revenue Code §1366(d)(1) during the year in issue. Taxpayer was not allowed to deduct the losses from his corporation on his individual tax return in 2003. The decision was entered for the Internal Revenue Service .

Los Angeles Tax Attorney:

Internal Revenue Service IRS
released information on its tax audit and tax collection activity results from 2009. Tax Audit, Tax Collection and Tax Audit Category base on income can be found here .

Interesting points to note:

1) IRS Collected through tax levies and tax liens $48.9 Billion Dollars last year. However that was about $7 Billion less than in 2008.

2) IRS audited 1,099,639 tax returns last year which shows an increasing trend over the last 10 years. It is expected that IRS will increase its tax audit by 3.5% in 2010.

3) If you make less than $200,000, your chances of getting audited is about 1%.

4) If you make between $200,000 and million dollars, your chances of getting audited is about 3%.

5) If you make more than $1,000,000, your chances of getting audited is about 6.5%.

Pasadena Tax Attorney:

Here is a quick summary of a recent US TAX COURT case against the Internal Revenue Service to challenge the tax deductibility of medical expenses incurred by taxpayers. The case involves taxpayers who deducted medical expenses related to in-vitro fertilization.

CHRISTINA MARIE THOMPSON MCGRATH, Petitioner v.
COMMISSIONER OF COMMISSIONER OF Internal Revenue Service
, Respondent
Docket No. 3954-08.

IRS Tax Problem
The issue in this case is whether the petitioner is entitled to deduct medical expenses paid on her behalf by another person.

Relevant Internal Revenue Code

Internal Revenue Code §213(a) allows “ as a deduction the expenses paid during the taxable year, not compensated for by insurance or otherwise, for medical care of the taxpayer.”

CAN TAXPAYER DEDUCT MEDICAL EXPENSES PAID ON THEIR BEHALF BY THIRD PARTIES?

In 2005 the petitioner and her husband entered into an agreement for in vitro fertilization services. Petitioner’s father paid $39,542 for the services as a wedding gift to petitioner and her husband. The petitioner and her husband claimed a medical expense deduction of $34,313 of their 2005 individual income tax return, under section 213(a). In 2008 the petitioner received a full refund of the amount paid because the services were not successful. The respondent determined a deficiency in petitioner’s Federal income tax for 2008.

TAXPAYER CANNOT DEDUCT MEDICAL EXPENSES PAID BY A THIRD PARTY

The Internal Revenue Service claimed that the petitioner is not entitled to deduct the amount paid because her father paid for the services on her behalf. The Internal Revenue Service relied on a series of cases holding that taxpayers are not entitled to deduct medical expenses which they did not pay or which were reimbursed by some other source. Decision was entered for the Internal Revenue Service .

Torrance Tax Attorney:

Here is a quick summary of a recent US TAX COURT case against the Internal Revenue Service to challenge the taxability of lawsuit settlement funds. The case involves money settlement received by a taxpayer from a class action against the US Air Force.

KEVIN HENNESSEY v.
COMMISSIONER OF Internal Revenue Service
Docket No. 20484-07.

Tax Problem
The issue is whether a lump-sum amount of money the petitioner received pursuant to a class action settlement agreement is excludable from gross income under section Internal Revenue Code 104(a)(2).

Internal Revenue Code

Internal Revenue Code §61 (a) includes in gross income “all income from whatever source derived” unless excluded by a specific provision of the Code.

Internal Revenue Code §104 (a)(2) excludes from gross “amount of any damages received (whether by suit or agreement and whether as lump sum or as periodic payments) on account of personal physical injuries or physical sickness”.

IS MONEY FROM LAWSUIT SETTLEMENT TAXABLE?
Mr. Hennessey and other officers, whom the U.S. Air Force selected for involuntary separation because of congressionally mandated personnel reductions in the Armed Forces, filed a complaint in the U.S. Court of Federal Claims. The plaintiffs claimed that the Board in charge violated their equal protection rights under the Fifth Amendment to the U.S. Constitution because it improperly considered race and gender in selecting officers for involuntary separation. The class action case was settled and each member received a lump-sum payment. When petitioners filed their tax return, they did not include in income the lump-sum payment.

IRS TAXES ALL COMPENSATION UNLESS EXCLUDED BY SECTION 104(a)(2)

The lump-sum payment was not compensation for physical injuries or physical sickness that Mr. Hennessey might have suffered as a consequence of any actions taken by the U.S. Air Force. Therefore, the exception of Internal Revenue Code §104 (a) (2) is not applicable. The decision was entered for the Internal Revenue Service .

Los Angeles Tax Attorney:

Congratulations Los Angeles Lakers #15

Los Angeles Lakers 2009 World Champions Game Highlights

SUBCONTRACTOR SALES TAX

California Sales Tax Audit Attorney:

A California subcontractor who has furnished and installed materials or fixtures for a general or prime contractor must pay California sales tax on the materials cost or in the case of non U.S. contractors the retail selling price of the fixtures installed. California BOE Sales Tax rules require a subcontractor who has furnished and installed materials or fixtures for a prime contractor must pay tax on the cost of the materials or in the case of non U.S. contractors the retail selling price of the fixtures installed.

A subcontractor may not accept a resale certificate from a prime contractor for materials the subcontractor furnishes and installs. Under most circumstances, California BOE Sales Tax guidlelines state that subcontractors may also not accept a resale certificate from a prime contractor for fixtures the subcontractor furnishes and installs.

However, a subcontractor may furnish and install a fixture for a person, other than the owner of the realty, who intends to lease the fixture in place as tangible personal property and pay tax on the rental receipts. In this latter case, the subcontractor may accept a resale certificate from the lessor at the time of the transaction.

Most Sales Tax Audits for subcontractors spin off from an audit conducted on the general contractor which would disclose potential untaxed transactions among the many related companies and sub contractors in its network. In that regard, subcontractors should consider material purchase arrangements or construct their contracts with either the general contractor or the owner of realty to reduce or eliminate potential sales tax liability.

Source Document from EDD

Sales Tax Attorney

California Sales Tax Problem BOE Sales Tax audit levels have been increasing in recent years as California budget problems creates additional need for enforcement and collection of existing sales taxes.

One the most common targets for California Sales Tax Audits in recent years has been owners of gas and service stations. Under the Sales and Use Tax Law, the sale or use of merchandise, including fuel, is taxable. For an auto repair business or service station, tax generally applies to sales or use of all of the following:

• New, used, or rebuilt automobile parts. This includes both general repair or maintenance parts such as spark plugs, belts, tires, batteries, PCV valves, and brake shoes or pads; and replacement parts such as engines, transmissions, alternators, water pumps, fenders or bumpers.

• Parts you manufacture. The taxable selling price of the part should include the cost of the labor required to manufacture it.

• Lubricating products such as oil and grease.

• Automotive fluids such as brake or transmission fluid and window washer solution.

• Fuel.

Your sale is taxable unless it qualifies for an exemption or exclusion It is important to remember that the taxable selling price of an item may include not only the charge for the item itself, but also charges for mandatory warranty contracts.

For fuel sales, the taxable selling price can also include charges for certain state and federal excise taxes.

As a retailer, you owe the sales tax to the state. But you may collect from your customer an amount equal to the tax you will owe. This is usually itemized on sales invoices as “sales tax.”

Labor and services
Generally your charges for labor and services are not taxable (two exceptions are noted below). You must list labor and service charges separately on your customer invoices. This includes your charges for:

• Installation labor on used vehicles such as replacing spark plugs, replacing brake shoes or pads, removing and installing engines, or installing sound systems.

• Repair labor to bring a vehicle back to its original condition. Examples of repair labor include rebuilding carburetors or heads, replacing parts in engines or transmissions, and performing body and fender work.

• Maintenance services such as tune-ups, oil changes, or radiator flushes.

• Services such as charging a battery or towing a vehicle.

Exceptions

While sales and use tax generally does not apply to labor charges, there are two exceptions. Labor charges for making a part (“fabrication labor”) are usually taxable, as are labor charges for installing parts on new vehicles.

If you have further questions about California Sales Tax Audits please contact us.

Content Source: California BOE

Californa Sales Tax BOE - Board of Equalization Tax Attorney

California Board of Equalization California Sales Tax

Sales Tax for Construction Restaurant and Bars

APPLICATION OF TAX TO RESTAURANT EQUIPMENT CONTRACTORS

The Board of Equalization, in conjunction with the Restaurant Equipment Contractors Association, has made a study of components involved in lump-sum contracts for the furnishing and installing of restaurant equipment. Review Construction Sales Tax Basics Here

Application of California sales tax may differ based on type of contract you have with your contractor as well as classification of items used to construct the restaurant or bar. Sales tax amount for materials, equipments and fixtures will vary significantly and it may result in huge tax savings for either the restaurant owner or contractor depending upon classification method.

The following are some items which are usually considered to be materials when furnished and installed by a construction contractor in performing a contract for the food industry:

Carpeting, including padding and trim when affixed to the real property by glue, nails, etc.
Doors
Ducts installed in walls, ceilings, and floors
Grab bars (for handicapped lavatories)
Millwork
Pass window frames and shelves
Wall corner pieces and wall caps
Wall covering materials (wallpaper; paneling; etc.)
Wall flashing
Wall mirrors

The following items furnished and installed by contractors to the food service industry are generally classified as fixtures:

Bolt-down counter stool bases, with stools attached thereto
Bolt-down table bases with table tops affixed
Custom fabricated cash stands
Custom fabricated cocktail back bar superstructures
Custom fabricated cocktail back bar
Custom fabricated cocktail bars
Custom fabricated counters
Custom fabricated dishtable assemblies
Custom fabricated make-up tables
Custom fabricated pot racks
Custom fabricated scullery sink assemblies
Custom fabricated seating assemblies/booth units
Custom fabricated serving counters
Custom fabricated service stands
Custom fabricated soffits
Custom fabricated walk-in coolers and freezers that are affixed to the real estate
Dispensers for soap, towels, toilet tissue
Faucets
Freezers
Hoods
Lighting fixtures
Motors
Plumbing fixtures
Refrigeration compressors
Refrigerators
Safes, imbedded in concrete in the buildings
Water heaters (built into fixtures or into water systems)
Water softeners (built into fixtures or into water systems)

Fixtures also include the following items which are built into fixtures or otherwise built into the realty and which may not be removed without damage to the items or the realty:

Char-broilers
Dish dispensers
Dishwashers that are built into a dishtable
Disposals
Drink dispensers
Freezers
Griddles
Ice cream cabinets
Ovens
Refrigerators
Roll warmer
Scrap chutes
Soda fountain systems
Soup warmers
Syrup rails

The following is a list of items which may be generally considered to be machinery and equipment when freestanding or when they are not firmly affixed to the building or built into it or another fixture and which may be readily removed without damage to the building, the unit, or other fixture:

Adding machines
Artifacts items
Bar stools
Beverage and juice dispensers
Bulletin boards
Can openers
Chairs
Char-broilers
Chinaware, silverware, pots and pans, paper goods, culinary items
Coffee makers
File cabinets
Flight-type dishwashers
Floor racks
Griddles
Hot water hoses
Ice bins
Ice cream cabinets
Ice making machinery
Iced tea dispensers
Iced tea machine
Lockers
Microwave ovens (freestanding)
Milk dispensers
Mixers
Ovens
Portable bins and tables
Ranges
Reach-in freezers (self-contained)
Reach-in refrigerators (self-contained)
Roll covers
Safes
Salamanders
Scales
Shelving units
Silverware boxes
Slicers
Table lamps
Tables
Time car racks
Time clocks
Toasters

Californa Sales Tax - Board of Equalization Tax Attorney

California Board of Equalization California Sales Tax

Sales Tax for Construction Contractors to US Government Projects

A. MATERIALS AND FIXTURES — U.S. construction contractors are the consumers of materials and fixtures which they furnish and install in the performance of construction contracts with the United States Government. Either the sales tax or the use tax applies with respect to sales of such property to U.S. construction contractors. There is no distinction between the application of tax to materials and fixtures. Only the cost is subject to tax (even though the fixtures are self-manufactured).The sales tax, but not the use tax, applies even though the contractor purchases the property as the agent of the United States.

B. MACHINERY AND EQUIPMENT — U.S. construction contractors are retailers of machinery and equipment furnished in connection with the performance of a construction contract with the United States Government. Tax does not apply to sales of machinery and equipment to U.S. contractors or subcontractors, provided title to the property passes to the United States before the contractor makes any use of it. The contractor may issue a resale certificate. However, if the contractor uses the machinery or equipment before passage of title to the United States, then the contractor is the consumer of the machinery or equipment and either sales tax or use tax applies to the sale to or the use by the contractor of the machinery and equipment.

Californa Sales Tax - Board of Equalization Tax Attorney

California Board of Equalization California Sales Tax

APPLICATION OF CALIFORNIA BOARD OF EQUALIZATION - BOE SALES TAX TO CONSTRUCTION CONTRACTORS AND SUBCONTRACTORS

A. MATERIALS — California contractors are consumers of materials which they furnish and install in the performance of construction and builidng contracts, and sales tax applies to the cost of materials to the construction contractor.

However, a construction contractor may contract to sell materials and also to install the materials sold. If the contract explicitly provides for the transfer of title to the materials prior to installation, and separately states the sale price of the materials, exclusive of the installation charge, the contractor will be considered the retailer of the materials.

In the case of a time and material contract, if contractors bill their customers an amount for sales tax computed on their marked-up billing for materials, they are considered to be retailers of materials, and are subject to sales tax on the amount on which tax reimbursement is charged.

If the sale occurs in California, the sales tax applies to the contractors’ gross receipts from the sale of the materials.

If the sale occurs prior to the time the property is brought into this state, the customer is considered the consumer and must pay their use tax based on the sales price.

The contractor must collect this use tax from the customer and pay it to the State of California.

When a contractor fabricates or processes material prior to installation, no tax is due on such processing costs; only the contractor’s actual material cost is subject to the tax.

Where the contractor sublets fabrication or processing of material to an outside firm, such fabrication is considered part of the taxable cost of materials.

B. FIXTURES — Contractors are the retailers of fixtures which they furnish and install, and tax applies to their sales of the fixtures. If the contract states the selling price of the fixture, tax applies to that price. If no sales price is stated, the taxable retail selling price is the cost price of the fixture to the contractor. If contractors purchase a manufactured fixture, the cost price is the sales price of the fixture to them, including any manufacturer’s excise tax or import duty imposed prior to the sale by the contractor. However, if the contractor manufactures the fixture, the cost price is considered to be:

1. The prevailing price at which similar fixtures in similar quantities ready for installation are sold by the contractor to other contractors, or

2. If similar fixtures are not sold to other contractors, then the cost price shall be deemed to be the amount stated In the price lists, bid sheets, or other records. If the sale price cannot be established in the above manner, the cost price shall be the aggregate of the following:

a. Cost of materials, including freight-in and import duties; direct labor, including fringe benefits and payroll taxes; specific factory costs attributable to the fixture; any manufacturer’s excise tax; pro rata share of all overhead attributable to the manufacture of the fixture; and reasonable profit from the manufacturing operationswhich, in the absence of evidence to the contrary, shall be deemed to be 5 percent of the sum of the preceding factors.

b. Jobsite fabrication labor and its prorated share of manufacturing overhead must be included in the sale price of the fixture. Jobsite fabrication labor includes assembly labor performed prior to attachment of a component or a fixture to a structure or other real property.

3. A construction contractor may furnish and install a fixture for a person, other than the owner of the realty, who intends to lease the fixtures in place as tangible personal property and pay tax measured by rental receipts. In this case, the contractor may take a resale certificate from the lessor at the time of the transaction, and the sale to the lessor will be considered a sale for resale.

C. PREFABRICATED CABINETS — A cabinet will be considered “prefabricated,” and a “fixture” when 90 percent of the total direct cost of labor and material in fabricating and installing the cabinet is incurred prior to affixation to the realty. In determining this 90 percent, the total direct cost of all labor and materials in fabricating the cabinet to the point of installation will be compared to the total direct cost of all labor and materials in completely fabricating and installing the cabinet. Each cabinet will be considered separately if more than one cabinet is fabricated and installed under the contract.

D. MACHINERY AND EQUIPMENT — A construction contractor is the retailer of machinery and equipment, even though the machinery and equipment are furnished in connection with a construction contract. If the contract only requires the furnishing and installation of machinery and equipment, tax applies to the total contract price, less installation labor charges and other excludable charges. If a lump-sum contract includes the furnishing and installation of materials, fixtures, and machinery and equipment, tax applies to the price at which such machinery and equipment in similar quantities ready for installation are sold at retail, delivered to the area where the installation takes place. If no such retail price for the machinery and equipment exists, then tax applies to the retail price determined from contracts, price lists, bid sheets, or other records of the contractor.

If the gross receipts cannot be established in the above manner and the machinery and equipment is manufactured by the contractor, the gross receipts from the sale shall be aggregate of the following: 1. Cost of materials, including such items as freight-in and import duties; direct labor, including fringe benefits and payroll taxes; specific factory costs attributable to the machinery or equipment; any manufacturer’s excise tax; pro rata share of all overhead attributable to the machinery or equipment, including overhead attributable to manufacturing, selling, contracting, and administration, and; reasonable profit from the manufacture and sale of the machinery or equipment which, in the absence of evidence to the contrary, shall be deemed to be 5 percent of the sum of the preceding factors. 2. Job site fabrication labor and its prorated share of manufacturing overhead must be included in the sale price of the machinery or equipment. Job site fabrication labor includes assembly labor performed prior to attachment of a component or the machinery or equipment to a structure or other real property.

E. SUPPLIES AND TOOLS FOR SELF-USE — Contractors are the consumers of supplies such as oxygen, acetylene, gasoline, acid, thread-cutting oil, and tools and parts for tools, which they use in their business, and the tax applies to the sale of such supplies and tools to contractors.

F. MISCELLANEOUS — Items such as adhesives, clips, and nails, could be classified as material, fixtures or equipment, depending on the use made of the product, i.e., if clips are used merely to prevent movement of the item while in production they would be supplies; but if they attach an item to realty, they would be considered materials. However, if attached to a manufactured fixture or piece of equipment, they would assume that identity.

G. TAX-PAID PURCHASES RESOLD — If the contractor sells short ends or pieces which are not used other than in severing them from larger units purchased by him and on which he has paid sales tax reimbursement or use tax, he may claim the deduction for tax-paid purchases resold, but the amount of the deduction shall not exceed the price at which he sells such short ends or pieces.

Californa Sales Tax - Board of Equalization Tax Attorney

California Board of Equalization California Sales Tax

California Board of Equalization has focused on sales tax audit of independent mobile phone vendors. Cell phone vendors must charge for sales tax on the full sales price of a cell phone when purchased at a discounted price, even when the phone offered for free. The application of the full sales tax is the same for pagers and other wireless telecommunication devices sold through a "bundled transaction."

When will sales tax be charged on the full sales price?

If you sell a cell phone at a discount and also require the end consumer to purchase a service contract, sales tax on the full sales price of the phone, not the discounted price, must be collected from the buyer. Even if the phone is sold for free, tax on what the phone’s sales price would have been without the service contract must be collected.

California Sales Tax Audit Determination

When the sale of a phone is made together with a required service contract, it is called a “bundled” transaction. If a phone is sold by itself, the sale is called an “unbundled” transaction.

Bundled transaction
Most cell phones are sold at a discounted sales price, or given away at no cost. However, in order to receive the discount or free cell phone, the customer is required to purchase a service contract of greater than one month (typically one or two years) with a particular service provider. California Board of Equalization Sales Tax Regulation 1585, Cellular Telephones, Pagers, and Other Wireless Telecommunication Devices, describes these types of sales as bundled transactions.

Unbundled transaction
A retailer may sell a cell phone without the requirement that a customer purchase a service contract. These sales are unbundled transactions and the actual sales price charged by the retailer to the customer is referred to in Regulation 1585 as the “unbundled sales price.”

How tax applies
When the sale is a bundled transaction, the retailer must report and pay tax based on the unbundled sales price of the cell phone whether or not the price of the phone is itemized on the invoice. The retailer is allowed to collect tax from the customer based on the unbundled sales price, and then pay that amount to the state. The unbundled sales price is either
• The sales price the retailer typically charges for the cell phone without requiring the purchase of a service contract, or
• The fair retail selling price (if the above cannot be established by the seller’s records).

Example
Excellent Cell Phones advertises a cell phone for $29.99 but requires you to activate the phone with a specific service provider for a two-year contract period. The retailer typically sells this phone for $179.99 without a service contract. The retailer is responsible for reporting and paying sales tax based on the unbundled sales price of $179.99 (tax of $14.85 assuming an 8.25 % tax rate). Even if Excellent Cell Phones offers the same cell phone for free, the tax would be the same, $14.85, as it is based on the $179.99 unbundled sales price. When the sale is an unbundled transaction, the retailer must report and pay tax based on the actual sales price charged to the customer.

Are fees for activating the cell phone taxable?
Fees for one-time activation and charges for wireless service are generally not taxable.

Los Angeles Tax Attorney

Internal Revenue Service IRS TAX has various guidelines for tax lawyers which identifies issues and common tax problems which may arise during IRS tax or payroll tax audit involving various businesses. IRS Tax Examiners often rely on these tax guides to conduct their audits. Tax attorneys may challenge their client's tax audit results through the United States Tax Court US TAX COURT and may cite or reference any deviations from the various business audit tax guides.

The following businesses are commonly audited have industry based IRS tax audit guides which are used by the IRS auditors.

IRS Tax Audit Guide - Businesses Most Commonly Audited by Internal Revenue Service

Accuracy - Related Penalties For Taxpayers Involved In Tax Shelter Transactions
Alaskan Commercial Fishing: Catcher Vessels Part One
Alaskan Commercial Fishing:Processors and Brokers Part Two
Alternative Minimum Tax - For Individuals
Architects
Artists And Art Galleries
Auto Body and Repair Industry
Auto Dealerships Audit Technique Guide
Aviation Tax
Bail Bond Industry
Bars and Restaurants
Beauty and Barber Shops
Bed and Breakfasts
Business Consultants
Car Wash Industry
Carpentry/Framing
Child Care Providers
Coal Excise Tax
Commercial Banking
Commercial Printing
Computers, Electronics, & High Tech Industry
Construction Industry
Drywallers
Entertainment - Important 1040 Issues
Farmers Audit Technique Guide
Farming - Specific Income Issues and Farm Cooperatives
Furniture Manufacturing
Garden Supplies
Garment Contractor
Garment Manufacturers
Gas Retailers
General Livestock
Grain Farmers
Hardwood Timber Industry
Independent Used Car Dealers
Farm Hobby Losses with Cattle Operations and Horse Activities
The Laundromat Industry
Lawsuits Awards and Settlements
Low-Income Housing Credit
Manufacturing Industry
Masonry And Concrete Industry
Ministers
Mobile Food Vendors
Mortuaries
Music Industry Handbook
Oil And Gas Industry
Partnerships Audit - Technique Guide
Passive Activity Losses
Pizza Restaurants
Placer Mining Industry
The Port Project
Poultry Industry
Reforestation Industry
Rehabilitation Tax Credit
Retail Gift Shops
Retail Industry Audit Technique Guide
Retail Liquor Industry
Scrap Metal Industry
Shareholder Loans
Sports Franchises
Swine Farm Industry
Taxicab Industry
Tobacco Industry
Tour Bus Industry
Trucking Industry
Veterinary Medicine
The Wine Industry

California Tax Attorney:

Internal Revenue Service IRS TAX announced that California businesses and associations have until Aug. 31 to submit tax issues to the Internal Revenue Service to be included in the Fall 2008 review in the Industry Issue Resolution (IIR) Program so that these issues could be resolved outside of IRS Tax Audit or the involvment of the United States Tax Court US TAX COURT. This program really does help address many common tax issues and may help California business owners avoid a full blown IRS tax audit which can be costly and time consuming to taxpayers.

IIR is an IRS IRS TAX program to resolve business tax issues common to significant numbers of taxpayers through new and improved guidance. In past years, issues submitted by associations and others representing both small and large business taxpayers, resulted in tax guidance that has affected thousands of taxpayers. >

Recent submissions accepted into the IIR by Internal Revenue Service IRS TAX program include:

Integrated Public Utilities - regarding an optional method to be used by integrated utility companies in computing their qualified production activities income under IRC section 199(c). Auto Last In First Out - for automobile wholesalers, manufacturers and dealers regarding the proper treatment of the dollar-value, LIFO inventory method for pooling purposes of crossover vehicles, which have characteristics of trucks and cars.

Recent guidance issued by Internal Revenue Service IRS TAX as a result of the IIR program includes:

A safe harbor pooling method, the Vehicle-Pool Method, is available for resellers of cars and light-duty trucks under the last-in, first out (LIFO) inventory method effective for tax years ending on or after December 31, 2007, (Revenue Procedure 2008-23) Valuation of Parts Inventory by Heavy Equipment Distributors (Revenue Procedure 2006-14) Clarification regarding circumstances when facsimile signatures may be used to sign employment tax forms. (Revenue Procedure 2005-39) Explanation of the circumstances under which insurance companies that make incentive payments to health care providers will be permitted to include those payments in unpaid losses. The revenue procedure also provides procedures under which taxpayers may obtain automatic consent of the Commissioner to change their accounting method for those payments. (Revenue Procedure 2004-41)

For each issue selected, an IIR team of Internal Revenue Service IRS TAX and Treasury personnel gather relevant facts from taxpayers or other interested parties affected by the issue. The goal is to recommend guidance to resolve the issue. This benefits both taxpayers and the IRS by saving time and expense that would otherwise be expended on resolving the issue through IRS Tax Audit. IIR project selections are based on the criteria set forth in Revenue Procedure 2003-36.

Los Angeles Tax Attorney: Internal Revenue Service IRS Tax Audit case.

In a recent IRS Tax Court case, DOUGLAS K. AND GAYLE L. BARRETT, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE SERVICE, Respondent, July 21, 2008,
California taxpayers filed a US Tax Court US TAX COURT Complaint against the IRS for tax increases resulting from IRS Tax Audit. Taxes at issue are not for IRS payroll tax.

In the tax court, taxpayers claimed certain deductions including tools and automobiles used for the taxpayer's contractor business. However, IRS disallowed these deductions in the tax audit. IRS also charged an accuracy-related penalty-20 percent pursuant to IRS Tax Code section 6662(a).

IRS taxpayer did not provided any documentation to substantiate the cost of goods sold reported on their tax return. IRS tax auditor denied most of the business related expenses.

> US Tax Courts have held that where taxpayers’ testimony is general, conclusory, or uncorroborated, the Court is not required to accept such testimony as sustaining taxpayers’ burden of proof. See Lerch v. Commissioner, T.C. Memo. 1987-295, affd. 877 F.2d 624 (7th Cir. 1989); Geiger v. Commissioner, T.C. Memo. 1969-159, affd. 440 F.2d 688 (9th Cir. 1971).

Tax Practice Note:
Taxpayers bear the burden of proving the Commissioner’s determinations are erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933).

IRC Section 162(a) allows deductions for ordinary and necessary expenses of carrying on a trade or business. Section 7491 regarding the burden of proof is not applicable in this case because petitioners have failed to meet the requirements of section 7491(a)(1) and (2).

IRS tax deductions are strictly a matter of legislative grace, and taxpayers bear the burden of proving they are entitled to any claimed deductions. INDOPCO, Inc. v. Commissioner, 503 U.S. 79, 84 (1992).

Section 6001 requires taxpayers to maintain adequate books and records sufficient to substantiate all costs of goods sold and all deductions claimed on tax returns.

Section 274(d) requires taxpayers to substantiate any claimed deductions of listed property by adequate records or sufficient evidence and bars any deduction for an expenditure governed by section 274 on the basis of unsupported testimony of the taxpayers or on the basis of the taxpayers’ approximation.

IRS must prove penalty assessments under Section 6662(a) and (b)(1). This section imposes a 20-percent penalty on the portion of an underpayment attributable to negligence. Negligence includes any failure to keep adequate books and records or to substantiate items properly.

Sec. 1.6662-3(b)(1), Income Tax Regs. The Commissioner has the burden of production with respect to accuracy-related penalties. Sec. 7491(c). To meet that burden, the Commissioner must produce sufficient evidence indicating that it is appropriate to impose the penalty. See
Higbee v. Commissioner, 116 T.C. 438, 446 (2001). Once the Commissioner meets his burden of production, the taxpayer must come forward with persuasive evidence that the ommissioner’s
determination is incorrect. Rule 142(a); Higbee v. Commissioner, supra at 446-447.

The taxpayer may meet this burden by proving that he or she acted with reasonable cause and in good faith. See sec. 6664(c)(1); sec. 1.6664-4(a) and (b)(1), Income Tax Regs.

Los Angeles Tax Attorney Internal Revenue Service IRS TAX today announced an increase in the optional standard mileage rates for the final six months of 2008. Taxpayers may use the optional standard rates to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

The rate will increase to 58.5 cents a mile for all business miles driven from July 1, 2008, through Dec. 31, 2008. This is an increase of eight (8) cents from the 50.5 cent rate in effect for the first six months of 2008, as set forth in Internal Revenue Procedure 2007-70. IRS TAX AUDIT - Auto Expense Miles

In recognition of recent gasoline price increases, the IRS made this special adjustment for the final months of 2008. The IRS normally updates the mileage rates once a year in the fall for the next calendar year.

"Rising gas prices are having a major impact on individual Americans. Given the increase in prices, the IRS is adjusting the standard mileage rates to better reflect the real cost of operating an automobile," said IRS Commissioner Doug Shulman. "We want the reimbursement rate to be fair to taxpayers."

While gasoline is a significant factor in the mileage figure, other items enter into the calculation of mileage rates, such as depreciation and insurance and other fixed and variable costs.

The optional business standard mileage rate is used to compute the deductible costs of operating an automobile for business use in lieu of tracking actual costs. This rate is also used as a benchmark by the federal government and many businesses to reimburse their employees for mileage.

The new six-month rate for computing deductible medical or moving expenses will also increase by eight (8) cents to 27 cents a mile, up from 19 cents for the first six months of 2008. The rate for providing services for charitable organizations is set by statute, not the IRS, and remains at 14 cents a mile.

The new rates are contained in Announcement 2008-63 on the optional standard mileage rates.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. IRS Mileage Expense for Tax Audit

Tax Attorney Analysis of Potential IRS Tax Court Ruling-Tax Audit or Tax Problem From Plastic Surgery Expense Deductions.

Los Angeles - San Franciso Tax Attorney - The rate of plastic surgery in California especially in Los Angeles, Beverly Hills, Malibu, Pacific Palisades, Manhattan Beach, Palos Verdes, Newport Beach, Orange County, San Jose, San Franciso have seen dramatic increases over the last decade.

As tax attorneys, we are often asked by our clients in the entertainment industry whether certain surgical enhancements may be claimed as a deduction or expense.

Most tax lawyers are aware of the IRS Tax Court case involving “Chesty Love.” To generate more revenue from her profession as a stripper, Chesty Love decided to get breast implants to make her a size 56-FF and expensed the cost of the surgery. IRS tax court judge allowed Chesty to write off the cost of her operation equating her breast enhancement as a necessary expense alas “stage prop” to generate revenue.

However, can ordinary IRS taxpayers deduct breast implants or eye surgery and not run into tax problems in the event of a tax audit?

According to the IRS Attorney Tax Revenue Ruling #200357 issued by the IRS ,amounts paid by individuals for breast surgery, breast implants, vision correction surgery, and teeth whitening medical care expenses within the meaning of IRS Code § 213(d) may be deductible under § 213 of the Internal Revenue Code?

Hypothetical IRS Tax Court Case Scenario 1- Breast Implants and Tax:
Taxpayer A undergoes mastectomy surgery that removes a breast as part of treatment for cancer and pays a surgeon to reconstruct the breast.

Hypothetical IRS Tax Court Case Scenario 2 - Lasik and Tax:
Taxpayer B wears glasses to correct myopia and pays a doctor to perform laser eye surgery to correct the myopia.

Hypothetical IRS Tax Court Case Scenario 3 - Teeth Whitening and Tax:
Taxpayer C’s teeth are discolored as a result of age. C pays a dentist to perform a teeth-whitening procedure. A, B, and C are not compensated for their expenses by insurance or otherwise.

IRS Tax Court Rulings:
General IRS Tax Law or Tax Code Applicable to Medical Expenses:
Section 213(a) allows a deduction for expenses paid during the taxable year, not compensated for by insurance or otherwise, for medical care of the taxpayer, spouse, or dependent, to the extent the expenses exceed 7.5 percent of adjusted gross income. Under § 213(d)(1)(A), medical care includes amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body.

Medical care does not include cosmetic surgery or other similar procedures, unless the surgery or procedure is necessary to ameliorate a deformity arising from, or directly related to, a congenital abnormality, a personal injury resulting from an accident or trauma, or a disfiguring disease. Section 213(d)(9)(A). Cosmetic surgery means any procedure that is directed at improving the patient’s appearance and does not meaningfully promote the proper function of the body or prevent or treat illness or disease. Section 213(d)(9)(B).

Tax attorney would argue that A’s cancer is a disfiguring disease because the treatment results in the loss of A’s breast. Accordingly, the breast reconstruction surgery ameliorates a deformity directly related to a disease and the cost is an expense for medical care within the meaning of § 213(d) that A may deduct under § 213 (subject to the limitations of that section).

Tax Attorney would argue that cost of B’s laser eye surgery is allowed under § 213(d)(9) because the surgery is a procedure that meaningfully promotes the proper function of the body. Vision correction with eyeglasses or contact lenses qualifies as medical care. See Rev. Rul. 74-429, 1974-2 C.B. 83. Eye surgery to correct defective vision, including laser procedures such as LASIK and radial keratotomy, corrects a dysfunction of the body. Accordingly, the cost of the laser eye surgery is an expense for medical care within the meaning of § 213(d) that B may deduct under § 213 (subject to the limitations of that section).

In contrast, IRS tax attorney would argue that the teeth-whitening procedure does not treat a physical or mental disease or promote the proper function of the body, but is directed at improving C’s appearance. The discoloration is not a deformity and is not caused by a disfiguring disease or treatment. Accordingly, C may not deduct the cost of whitening teeth as an expense for medical care.

California and Hawaii Taxpayers Struck by IRS Payroll Tax & Income Tax Problems Created by IRS Tax Evasion and Tax Avoidance Schemes.

Los Angeles - San Jose Tax Attorney: According to the Internal Revenue Service, lawyers from the IRS with the support of tax attorneys from DOJ announced that IRS has obtained civil injunctions against more than 100 tax promoters of illegal IRS tax avoidance schemes and fraudulent IRS tax return preparers in an ongoing crackdown that began in 2001.

Many of the illegal tax promoters targeted taxpayers in Los Angeles, Alhambra Burbank Carson Cerritos Downey El Monte Lawndale Lomita Long Beach Oakland Palmdale Pasadena Pomona San Jose Santa Monica Studio City Van Nuys West Los Angeles and Woodland Hills with income tax and payroll tax avoidance schemes. These taxpayers along with the tax promoters may receive IRS tax audit notice as part of the ongoing IRS tax investigation.

Many of the IRS Tax related injunctions, obtained in cooperation with the tax attorneys at Department of Justice, also order the IRS tax promoters to turn over taxpayer lists and to cease preparing IRS federal income tax returns for others.

Signaling a renewed fight against tax fraud and tax evasion, the IRS stepped up the use of injunctions to stop the tax evasion and tax fraud schemes designed to avoid income tax and payroll tax debt.

The IRS becomes aware of abusive tax promoters through a variety of means, including ongoing IRS tax audit, state of California tax audits,or referrals from external sources such as tax professionals.

The IRS is currently investigating more than 1,000 additional tax avoidance promoters for possible referral to the Justice Department and conducting individual and business tax audit on thousands of IRS tax scheme participants.

If you are currently being audited or think that you might be under IRS tax investigation, you may contact our offices located in Oakland, San Jose, San Mateo, Long Beach, Pasadena, Torrance, Los Angeles and San Francisco to speak with an experienced IRS tax attorney.

Los Angeles Tax Attorney - We serve California taxpayers with IRS or California State tax problem, tax audit, tax levy, tax lien, offer in compromise residing in the following areas: Alhambra Beverly Hills Burbank Carson Cerritos Culver City Downey El Monte Gardena Glendale Lawndale Lomita Long Beach North Northridge Palmdale Pasadena Pomona Rancho Palos Verdes Redondo Beach Rolling Hills San Gabriel San Pedro Santa Clarita Santa Fe Springs Santa Monica Sherman Oaks Studio City Torrance Valencia Van Nuys West Covina West Hollywood West Los Angeles and Woodland Hills.

All taxpayers should be aware of tax preparers such as Hazel Harris who according to government complaint targets elderly customers who receive Social Security benefits and generates fraudulent income tax refunds on their behalf.

The Government and IRS Tax complaint states that Harris tells her clients she is an accountant who specializes in refunds for Social Security recipients. In order to increase business, she is alleged to have advised potential customers to contact current clients who have received refunds as a result of her fraudulent return preparation.

Harris reportedly generates improper tax refunds by reporting only half of her customers’ Social Security benefits as taxable income, and by fabricating amounts of taxes withheld. Additionally, she has prepared the clients’ returns for multiple years at one time, regardless of whether a return has already been filed for those years.

The government alleges that Harris has prepared more than eight-thousand federal income tax returns for others since 2001. According to Internal Revenue Service (IRS) estimates, she has claimed over $3.5 million in fraudulent refunds.

Continue reading "Tax Fraud-California Taxpayers Defend Against False IRS Tax Return" »

IRS Tax Audit Rate Increase for Los Angeles area Taxpayers and Businesses.

Long Beach Tax Attorney -The IRS continues to make strong progress in a number of key tax collection, IRS tax audit and tax enforcement areas. Taxpayers in the Los Angeles area including Pasadena, Long Beach, Sherman Oaks, Woodland Hills, Santa Monica, Redondo Beach, Torrance, Gardena, Santa Ana, Irvine, Anaheim, El Monte and Palmdale received more IRS Tax audit notices than in prior years.

The IRS tax audit, tax collection and IRS tax enforcement efforts increased again last year. IRS audited 84 percent more returns of individuals with incomes of $1 million or more than during 2006. Overall, IRS tax enforcement revenue reached $59.2 billion, up from $48.7 billion in 2006 and nearly $34.1 billion in 2002.

Highlights of the enforcement and services numbers for fiscal year 2007, which ended on September 30, include:

Individuals
IRS Tax Audit rates increased in 2007, both for overall individual rates and for higher-income taxpayers.
Tax Audits of individuals with incomes of $1 million or more increased from 17,015 during fiscal year 2006 to 31,382 during fiscal year 2007, an increase of 84 percent. One out of 11 individuals with incomes of $1 million or more faced an audit in 2007.

Overall, the total individual returns audited increased by 7 percent to 1,384,563 in 2007 from 1,293,681 in 2006. That’s the highest number since 1998.

Audits of individuals with incomes over $200,000 reached 113,105 returns, up 29.2 percent from the prior year total of 87,885.

The IRS increased audits of individual returns with income of $100,000 or more, auditing 293,188 of these returns in 2007, up 13.7 percent from last year’s total of 257,851.

The IRS filed 3.8 million tax levies and almost 700,000 IRS tax liens during 2007, an increase from the previous year and a substantial increase from five years earlier.

Businesses

In the business arena, the IRS continued efforts to review more returns of flow-through entities – partnerships and S Corporations. While large corporate audits are down slightly, IRS has increased focus on mid-market corporations – those with assets between $10 million and $50 million dollars. The IRS enforcement budget in 2007 was similar to the budget in 2006, and in times of flat budgets, the agency cannot increase activity across the board but must address the areas where there is growth and potential risk.

IRS Tax Audit of S Corporations increased to 17,681 during 2007, up 26 percent from the prior year’s total of 13,984.

IRS Tax Audit of partnerships increased to 12,195 during 2007, up almost 25 percent from the prior year’s total of 9,777.

IRS Tax Audit of mid-market corporations increased to 4,473, up 6 percent from last year’s total of 4,218.

IRS Tax Audit of businesses in general rose to 59,516, an increase of almost 14 percent from the prior year’s total of 52,223.

Although the IRS Tax Audit of large corporations dipped slightly in 2007 to 9,644 IRS Tax Audit, the number of IRS Tax Audit is up 14 percent from the fiscal year 2002 level.

The key to proper IRS tax audit defense is to establish tax audit strategy at the beginning of the audit. If you are being audited by the IRS or California FTB and need an experienced tax attorney contact a Tax Attorney at Tax Lawyers Group.

Los Angeles IRS Tax Audit for Foreign Income Tax Attorney

Los Angeles Tax Attorney - Many IRS taxpayers located in Los Angles and California have taxable income from foreign sources. IRS is a member of an international tax enforcement and collection program to provide comprehensive IRS tax audit of returns of domestic taxpayers engaged in substantial international activities. IRS district tax directors in Los Angeles, Orange, San Diego, San Francisco, Pasadena, Glendale, Irvine, Torrance and Long Beach have jurisdiction of IRS tax returns audited, while agents of the Office of International Operations provide specialized assistance and participate with the IRS district tax agents in examination.

If a California IRS taxpayer who receives a request to produce foreign-based documents relevant or material to the tax treatment of an examined item fails to comply within 90 days, the requested material may be held inadmissable as evidence in IRS tax court. This rules does not apply if the taxpayer shows reasonable cause for failure to produce the documents.

IRS Tax Notice to Taxpayer for IRS Summons

Los Angeles Tax Attorney- The IRS tax code states that the summons “shall provide such other information [ apart from the name of the taxpayer] as will enable the person summoned to locate the records required under the summons. If the third party is a designated record keeper, the taxpayer may move in court to quash the summons. Nevertheless, the record keeper is to proceed to assemble the summoned records upon receipt of the summons and be prepared to produce the on the date specified for their examination. A record keeper is entitled to reimbursement for its costs, regardless of whether the summons is enforced.

Los Angeles, Pasadena, Long Beach, Torrance, Orange and Riverside area taxpayers who have been contacted by IRS Tax Summons should contact IRS tax attorney to resolve their tax problems.

Los Angeles IRS Tax Audit - Tax Attorney Production of Internal Revenue Service Documents

California Tax Attorney - During the coarse of an IRS tax audit, the IRS taxpayer may request documents from the Internal Revenue Service. Under a specific statute, the IRS taxpayer is entitled to inspect his IRS tax return, including amendments, supplements, and attachments.

In addition, Los Angeles, Long Beach, Torrance, Orange, Riverside, San Jose, California taxpayers may force the Internal Revenue Service to produce its manuals of instructions for revenue and special agents, since these are relevant to the possible improper use of the summons to aid an IRS criminal prosecution or IRS tax fraud; the IRS manuals may not be suppressed as privilege. The manuals are not exempt from disclosure under the Freedom of Information Act.

The Internal Revenue Service has been required under the Freedom of Information Act to give the taxpayer access the documents reflecting final opinions that showed how it arrived at certain fair market valuations, against the Internal Revenue Service’s argument that it was impossible to know what information might indirectly identify other taxpayers. But the taxpayer was not entitled to disclosure of a document prepared by the Internal Revenue Service which contained information almost completely derived from audits of another individual where the court found the material to be return information, not subject to the provisions of Freedom of Information Act.

California IRS Offices to Contact Third Parties for IRS Tax Audit and IRS Tax Collection

Los Angeles Tax Attorney - In 1998, the Congress amended Code Section 7602 to prohibit Internal Revenue Service employees including IRS Agents and IRS Auditors from contacting third parties with respect to the taxpayer’s IRS tax liability without providing reasonable advance notice to the taxpayer that third-party contacts may be made.

Most IRS tax attorneys and tax lawyers who resolve tax problems were concerned that (1) that such contacts by the IRS may have negative effect on the taxpayer’s business and could damage the IRS taxpayer’s reputation in the community, and (2) that taxpayers should have the opportunity to resolve his tax problems through his tax attorney before the IRS contacted third parties.

IRS third party contact notice provides a general tax notice to the taxpayer before most third-party contacts are made, and then to periodically (or upon the taxpayer’s request) provide the taxpayer with a record of the persons contacted by the Internal Revenue Service. If you are a taxpayer located in Los Angles or California with IRS tax problems, IRS tax audit or IRS tax levy collection, make sure you contact IRS tax attorney so that your IRS tax rights are protected.

IRS Tax Attorney says IRS Tax Audit for Los Angeles and California Residents will increase.

IRS, including the IRS offices in Los Angeles and throughout California, is likely to get higher budget for tax collection enforcement activities according to the Internal Revenue Service. Tax attorneys and advisors to the President have stated that Congress will appropriate over 11 Billion dollars for IRS. A large portion of the IRS budget will be dedicated towards IRS’ expenditure for tax collection enforcement.

In addition, IRS plans to increase tax audits for higher wealth individuals including taxpayers in Los Angeles, Orange and Riverside County earning $100,000 or more, and especially among those making $1 million plus. The number of IRS tax audits among the million dollar group in Los Angeles and metro California regions increased 84 percent in 2007 from the prior year.

Also, IRS tax proposals include increased criminal penalties for those who have failed to file IRS Income tax returns. New IRS tax proposal will elevate failure to file IRS tax returns from a misdemeanor to a felony. This proposal would be effective for returns to be filed on or after Jan. 1, 2009.

If you haven’t filed your IRS tax return, it might be a good idea to get some help from IRS tax attorney soon.

Betting on the Los Angeles Lakers to win the NBA title this year? How about the Los Angeles Dodgers winning the World Series? If you have gambling winnings, IRS wants to tax you.

Payors of $1,200 or more on winnings from bingo or slot machines, or $1,500 or more from keno, must file information returns on Form W-2G with the service center by February 28 following the calender year in which the winnings were paid.

Beginning this year the Internal Revenue Service will require all poker tournament sponsors to report tournament winnings of more than $5,000. Casinos will also implement federal withhold 25 percent taxes from gambling winnings.

You are required to report gambling winnings on IRS Form 1040 on line 21. However, keep in mind that you are allowed to offset gambling losses against gambling winnings. Because of high audit exposure against those who claim gambling losses it is important to keep a good record of your gambling losses such as dates, wager amounts and type of gambling activity.