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Tax Audit Entertainment Industry

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They’ve just done it again! The IRS has targeted the entertainment industry for tax audits. If you’re an actor, director, producer, entertainer, composer, writer, film star, rock star, producer, recording artist, musician, publisher, manager or in any other way related to the music entertainment, film or related industry, you can or probably should suspect that you will be a target for the IRS examination of your tax returns.

 

This October, the IRS has released its Entertainment Audit Technique Guide as guidance to assist IRS auditors in the audit of individuals and businesses involved the entertainment industry.  The audit technique guides were developed as part of a Market Segment Specialization Program to target certain industries in which the IRS will generally apply additional scrutiny or consideration in enforcing compliance with tax reporting.

 

On the income side, the IRS will review residuals, royalties, licensing fees, fringe benefits, advances and more to ensure that all applicable revenues are fully reported. On the expense side, the IRS will scrutinize your record keeping, reporting compliance, the failure to capitalize, depreciate and amortize expenses, employment taxes, home office deductions and more to ensure that deductions actually exist, are not “personal” in nature and are fully supported in accordance with the strict reporting requirements of travel, meals and entertainment deductions required by law.

 

Remember that an audit of this year’s targeted tax industries may not hit you until around two years from now unless your returns are specifically targeted for other reasons. That does not mean you have nothing to worry about for two years. What that means is that THIS year’s return may not be audited for another two years, but by that time its highly likely that your audit will include this year’s returns, next year’s returns and possibly the year after that — all at one time and all with the same audit issues. So the time to get your affairs in order is NOW so you don’t get killed on your tax audit later.

 

Many of the tax strategies previously overlooked are being specifically targeted as “suspect” from the write-off of entertainment expenses, equipment leasing contracts, reimbursements, fringe benefits, income characterization, home office deductions and more. On the up side, we can make certain affirmative elections to allow you to take expenses, or a portion thereof, currently, rather than capitalize and amortize up front costs over a much longer period of time that would otherwise be required by law.

 

Whatever the case may be, the key in successful tax negotiations lies in the planning – the early identification of tax issues, strategies and the implementation of those strategies early in the game to help achieve the most optimal success.

 

 

 

Do New Federal Tax Lien Relief Procedures Apply To You?

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What Are the Effects of A Federal Tax Lien?

When the IRS files a Federal Tax Lien, it makes a claim to a taxpayer’s property as security or payment for a tax debt.  As this notice becomes public record, it not only serves to secure the IRS’s interest in collecting the tax debt, but informs other creditors of its priority position in collecting the debt and advises new potential creditors to carefully evaluate lending to the taxpayer in consideration of its preferred position.

Why Is This A Problem?

  • The filing of a federal tax lien may prevent the taxpayer from borrowing additional monies from other lenders until such time that the federal tax lien is removed;
  • Once recorded, the lien may damage a taxpayer’s credit score which may prevent the taxpayer from borrowing money that would otherwise have been available;
  • The recording of a tax lien may result in the taxpayer having to borrow money at a higher interest rate;
  • The inability of a business or individual to have available credit may result in missed opportunities that would otherwise have been profitable. Businesses without available credit will often fail in many ways.

Prior IRS Procedures

Prior to the new collection procedures, the IRS would generally not release a filed tax lien until the taxpayer satisfied all tax debt which includes taxes due, penalties and interest.  Once the debt was satisfied, in most cases, the IRS would automatically release the lien within 30 days.

New IRS Procedures

Newer line procedures now require the IRS to withdraw the federal tax lien immediately once full payment of taxes are made if requested by the taxpayer. This is particularly important because the prior automatic release 30 days after the taxpayer paid the debt unfortunately does not always happen.
More importantly, the IRS will now allow lien withdrawals for taxpayers entering into a direct debit installment agreement, or where the taxpayer not only agrees to make periodic payments in full satisfaction of its debt.
Third, the IRS will withdraw liens on existing direct debit installment agreements upon the taxpayer’s request, after the taxpayer can show that the direct debit payments will be honored by the bank.
Fourth, the IRS will soon double the dollar thresholds to $10,000 when liens are generally filed (previously $5,000).

Summary

The new lien procedures were developed in response to the ineffectiveness of the IRS to collect taxes despite the significantly increased filing of tax liens by the government. The filing of tax liens has not only been ineffective, but further hurts the ability to collect as it damages the taxpayer’s ability to borrow from other sources, causes an increase in interest rates when the taxpayer can borrow, damages a taxpayer’s reputation amongst the business community and other creditors.
Even though the filing of a tax lien may be removed, the notification that a tax lien was filed remains for many years thereafter which ultimately hurts the taxpayer’s credit score resulting in more limited borrowing options and higher interest rates.
Taxpayer’s facing liens now have more options to eliminate the filing of these liens by entering into certain agreements that were not previously available.
Taxpayer’s who already have tax liens can help increase their ability to borrow by having existing liens removed even when the tax debt is not fully paid.

Do you have an IRS tax problem and need immediate professional help?

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Dealing effectively with the Internal Revenue Service (IRS) or other state or local regulatory authorities requires specialized knowledge and experience. Only licensed tax attorneys, certified public accountants and enrolled agents can represent you before the IRS. Similarly, not all individuals who are licensed representatives have the expertise to represent you effectively and defend your rights. Your tax preparer is most often not your best choice.

Four Steps to Hire the Right Person

Assess qualifications

When hiring a tax problem resolution specialist, inquire about the persons qualifications. Review the educational background specific to resolving your problem. Inquire as to specific professional affiliations your representative may have. Having good marketing advertisement is not acceptable proof that a person is qualified to help you. Check your representative’s background. Is he or she a member of the Bar Association, Institute of Certified Public Accountants, American Society of Tax Problem Solvers?

Assess experience

Know your representative’s limitations. Has he or she dealt with the IRS in the past? When? How often? Did he or she work for the IRS at one time? Does the attorney have experience as a Certified Public Accountant or (at a minimum), a background in accounting? What is the practitioner’s reputation in the industry? Is there a proven track record of helping individuals or businesses with IRS problems? If it is a firm, exactly who in the firm will be handling your case?

Assess the cost

You know you need professional help but can you afford it? Should you hire a CPA, enrolled agent or tax attorney? Most practitioners charge hourly rates. Most will require a retainer and often require full payment up front. Once you’ve found practitioners that meet your requirements, choose several and conduct your assessment, including the cost. They will not hesitate to tell you their pay requirements. Sometimes, you can give them a brief description of the situation over the phone and they will tell you what it will cost to handle your tax problem.

What Can You Expect

Ask what your representative can do for you. Ask exactly what will be done to resolve your tax problems. How long will it take? Get a plan in writing and work with the tax relief practitioner to achieve your best outcome.

IRS Audits On the Rise For International and High Net Worth Taxpayers

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The enforcement of tax laws is a chief component of IRS effort to enhance voluntary compliance. Recently, the IRS Commissioner outlined IRS intentions to focus on tax evasion as it relates to international taxes in the forthcoming year with an increased emphasis on high-net worth taxpayers [IR-2010-122, December 9, 2010].

In 2009, IRS examinations were directed to international taxpayers, high-net worth individuals and non-filers.  Overall, IRS examinations have increased by approximately 3% over the prior year and are expected to increase consistently hereafter.  Of particular significance are audits of high-wealth individuals, which have increased 11.2%. Large corporation audits have also increased by approximately 3%.

If you maintain assets off shore, the IRS has not only put increased pressure on disclosure by foreign banks, but has put in place initiatives to form cooperative, joint agreements with foreign countries to share information and raise tax revenues.

With regards to corporations, new legislation includes the Foreign Account Tax Compliance Act (FATCA).  FATCA provides the IRS with better transparency and additional tools that we need to crack down on Americans hiding assets overseas. FATCA will increase information reporting by U.S. taxpayers holding financial assets outside the United States and impose stiff penalties for failure to comply. It will also require reporting of U.S. persons who hold accounts in foreign financial institutions or who own large interests in foreign entities that hold such accounts.

The IRS has placed a series of extremely harsh penalties on taxpayers who fail to report foreign holdings and transactions.  Taxpayers who continue to not file a required return and fail to respond to IRS requests for a return may be considered for a variety of enforcement actions. Continued non-compliance by flagrant or repeat non-filers could result in additional penalties and/or criminal prosecution. Voluntary disclosure of offshore accounts may be a taxpayer’s best defense for mitigating damages that may arise.