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Austin Tax Defense Law Blog

A quick look at the trust fund recovery penalty

Dealing with accounting and payroll taxes can be a nightmare, primarily thanks to the IRS. It's rules and regulations, as well as IRS tax law, dictate how these matters should be handled, and any misstep, even those that are seemingly minor, can have enormous ramifications. For this reason, businesses, business owners and others who are responsible for handling payroll taxes should think about seeking out legal assistance when accused of mishandling tax-related matters.

This may especially be the case when accused of being subjected to the trust fund recovery penalty. This penalty is imposed upon those who are responsible for withholding or collecting employment and/or income taxes but who fail to do so in accordance with the law. The penalty only comes into play when the party who bears this responsibility willfully fails to live up to it. There is no need for the government to prove intentional wrongdoing, though. In fact, so long as the IRS can show that a party knew or should have known of owed taxes and disregarded the requirement or was indifferent to it, then it can legally impose the trust fund recovery penalty.

Protecting yourself if your spouse or ex made tax mistakes

Getting married often means sharing everything from a last name to a home. You also typically merge your financial accounts and begin to share assets and debts. There are certain benefits to this practice. Especially when it comes to taxes, you and your spouse can likely save money by filing jointly instead of as individuals.

Unfortunately, sharing financial resources and tax filings with your spouse could mean that you wind up implicated in a legally questionable scenario involving the underpayment of taxes or other alleged forms of fraud on your joint tax returns.

What is innocent spouse relief?

Being married has its advantages. Amongst them are several tax benefits that can lessen your obligation to the IRS each year. Yet, there are instances where one spouse's actions or inaction has a significant effect on the family's tax liabilities, which may not arise until after an audit. When a family finds itself strapped with hefty tax liabilities, a spouse who feels like he or she shouldn't be on the hook for tax payments may take action in an attempt to protect themselves.

One step that can be taken is to seek innocent spouse relief. If granted, this type of relief removes all tax liability from an innocent spouse. In order to qualify, though, certain requirements must be met. For example, underreported income and improperly reported deductions and credits must be solely attributable to the other spouse. Additionally, the spouse who seeks relief must show that he or she was unaware of these errors at the time of signing the tax return. The IRS, or the court, must also find that, given all of the facts at hand, finding the innocent spouse liable for the tax liabilities would be unfair.

Don't engage the IRS alone

There are few things as scary in an Austin resident's life as receiving a letter from the Internal Revenue Service. Even before opening the letter, taxpayers imagine the myriad ways in which their life is about to change because of the news contained in the notice. Whether it is to point out a mistake, impose a penalty or declare an audit, taxpayers may end up spending the next couple of months going back and forth with the IRS without ever really understanding what they need to do.

What many do not know is that it is possible to investigate the interest and penalties imposed by the IRS and file abatement requests when necessary. Additionally, levies, garnishments and seizures can also be halted if proceedings are initiated in a timely manner. Lastly, if the facts do not add up, it is also possible to argue a case in tax court.

What is my tax filing status during divorce proceedings?

Austin couples that are newly separated or going through a divorce have enough on their plate without having to worry about how their new marital status will affect their taxes. Navigating these new waters can be tricky, as many have most likely not had to consider these issues previously. It can be complicated from the onset, as couples try to figure out whether they are married.

It seems like a simple enough question-are you married or single? However, the answer is not always straightforward, as IRS rules dictate that one is still married if their divorce is not finalized by December 31 of that year, even if the divorce papers have been filed. Similarly, if the divorce decree was issued on the last day of the year, taxes must be filed as if the person was unmarried the whole year. This does not change even if the couple is living separately-for the IRS, the court decree is the determinant.

Know your rights as a taxpayer

Even though tax season has come and gone, many Texas residents may feel like it never really passes. All year, they are either preparing for filing their next tax return or responding to errors they made in their last one. However, what many do not know is that, as taxpayers, they have certain rights.

Most importantly, taxpayers have the right to be informed. This means they have the right to know what taxes they must comply with and the procedures to do so, and to receive information about tax decisions made and explanations regarding them as well. Secondly, they have the right to quality service, meaning to polite, prompt and professional assistance from the Internal Revenue Service in such a manner that can be understood.

How to prepare for a tax audit

No matter who you are, the IRS has the legal right to select your tax return for an audit. As scary as it may be, just because you're faced with a tax audit doesn't necessarily mean you'll owe additional money.

The first step in the tax audit process is a notification letter. Keep in mind that you'll receive this notification via snail mail, not via email or over the phone.

Worker classifications under IRS tax law

Not every worker is equal in the eyes of the law. Austin residents who perform services that can be controlled by an employer, even if the way to achieve an objective is left up to the individual, are known as employees. On the other hand, independent contractors are those who offer their services to the general public and the payer has the right to control only the result of the work and not the way it is performed. For example, doctors, lawyers, subcontractors, accountants and dentists can be considered independent contractors.

From a tax point of view, this is an important distinction because the IRS tax law regarding both is going to be different. Employees are subject to certain taxes whereas independent contractors may have certain exemptions.

Tax obligations can be lessened with the help of professionals

In an ideal world, a Texas resident would understand IRS tax law, the information required to accurately fill out the returns he or she is obligated to do, and correctly enter one's exemptions and deductions. Unfortunately, this rarely happens-incorrect amounts are often entered or forms are not filed in a timely manner. As a result, individuals may find themselves facing an audit or other penalties.

The notice from the IRS that there is something wrong with one's tax returns can be overwhelming for a filer but it is important to stay calm in such situations. It is even more beneficial to consult someone who is experienced in tax law and can not only explain the reality of what is going on but also discuss the various options available. Many filers are not even aware that the IRS offers a number of relief options for those who are unable to pay their tax obligations.

Can the IRS revoke my passport?

There are many financial penalties to not paying one's taxes in a timely manner, but many Texas residents may not know that the Internal Revenue Service can notify the State Department when someone owes a seriously delinquent tax debt. This means that the State Department can deny someone's application for a passport and can even revoke an existing passport.

The Fixing America's Surface Transportation Act became law at the end of 2015. It gives the State Department the power to take passports away from certain individuals. A seriously delinquent tax debt is defined as one that is unpaid, legally enforceable federal tax liability that is more than $50,000. This amount includes interest and penalties and is also adjusted annually for inflation.

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