What are My Federal Income Tax Appeal Rights?

If your federal income return is audited by the IRS, you may appeal any proposed assessment of additional income tax, penalty and interest.  In any appeal to the IRS or to the courts, you may represent yourself, or you may be represented by a tax attorney, CPA or other authorized representative.

If you do not agree with any changes proposed by the IRS, you may choose to start the appeal process by having a conference with the auditor’s manager, or you may choose instead to appeal the proposed assessment immediately to the IRS appeals office.  There is generally no reason not to ask for a conference with the auditor’s supervisor.  You may win at this level.  And there is generally no reason not to appeal any proposed assessment to the IRS appeals office if you do not win at the supervisor conference level. 

If you do not reach a satisfactory resolution at the supervisory conference level, or you choose to skip this supervisory review, you have 30 days to your next course of action.  If you wish to appeal the proposed assessment to the IRS appeals office, you must submit a letter stating the relevant facts of the case and asking for the IRS appeals office to review the case.  If you do not respond within the 30 day period, the IRS will issue a statutory notice of deficiency, and you will then have 90 days to file a petition to the United States Tax Court. 

If you choose to appeal your case to the IRS appeals office, you will have an opportunity for a hearing and a chance to submit evidence to support your position.  The IRS appeals office will eventually issue a final assessment which either supports your position, or the position of the IRS auditor, or something else.  If you do not agree with the final assessment made by the IRS appeals office, or you do not file a request for review by the IRS appeals office, you have 90 days to file a petition with the United States Tax Court.  You also have a right to file an appeal in the United States Claims Court or the United States District Court, but these courts generally do not hear tax cases unless the proposed tax has been paid and you are seeking a refund.  To the contrary, the proposed tax does not have to be paid to appeal within the IRS or to the Tax Court.  A case may be further appealed to the U.S. Court of Appeals or to the Supreme Court, but only if those courts accept the case. 

If your tax return is being audited, you should consult with a tax professional.  Please call or email me to discuss any questions you have about your federal income tax appeal rights.    Jsenney@pselaw.com or 937-223-1130. 

AND ONE MORE THING.  This is a good time to consider making gifts of appreciated assets. Many assets are still being traded or valued at relatively low prices. If these assets are expected to increase in value over time, and you intend to transfer such assets to the next generation at some point, now might be the right time to gift such assets.  If you own a closely-held business which you intend to gift to the next generation, year-end is a great time to transfer a minority ownership interest in such business. You can take a business valuation discount on the transfer of such stock, you can do a transfer effective as of December 31 and then do a second transfer effective as of January 1 using the same valuation for both, and you can take advantage of annual gift exclusions for both 2011 and 2012.  Give me a call or email at Jsenney@pselaw.com or 937-223-1130 if you want to talk about year-end gift tax planning.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Immigration Law, Litigation, Arbitration, Mediation

I Am Being Audited, What Do I Do?

The IRS audits tax returns to confirm that the tax reported on the return is correct.  Being selected for audit does not always mean the IRS thinks you made an error or were dishonest.  The overwhelming majority of taxpayers file accurate returns, and they have a right to expect fair and efficient tax administration from the IRS.

The IRS selects the returns it will audit using a variety of methods, including: (a) existence of evidence the taxpayer has participated in an abusive tax shelter; (b) using a computer scoring system to flag returns that contain certain deductions and other characteristics indicative of errors or fraud; (c) the size of corporate taxpayers (large corporations get audited every year); (d) information matching of returns filed by taxpayers with information statements such as W-2s and 1099s filed by employers and banks; and (e) existence of related issues or transactions with other taxpayers under examination.

If your return is selected for audit, you have rights.  The IRS trains its employees to explain and protect your rights through the course of the audit.  Your rights include: (i) a right to professional and courteous treatment by IRS employees; (ii) a right to privacy and confidentiality about your tax matters; (iii) a right to know why the IRS is asking for information, how the IRS will use the information and what will happen if you do not provide the requested information; (iv) a right to representation, by yourself or by an authorized representative; and a right to appeal any disagreements, both within the IRS and before the courts.

An examination of your return may be conducted by mail or through an in-person interview and review of your tax records. The interview may be at an IRS office (office audit) or at your home, place of business, or accountant's office (field audit). You may make audio recordings of interviews, provided you give the IRS advance notice. If the time, place, or method that the IRS schedules is not convenient, you may request a change, including a change to another IRS office if you move or the business records are kept there.

The audit notification letter you receive from the IRS will tell you what records will be needed. You may represent yourself or have someone represent or accompany you to the audit.  If you are not present, your representative must have proper written authorization (power of attorney). The auditor will explain the reason for any proposed changes.  If you agree with the changes, the audit will end at this level.

If you do not agree with the IRS auditor, you have the right to appeal.  Appeal rights are explained by the IRS auditor at the beginning of each audit. More about your appeal rights in the next Blog.  Please call or email me if you have any questions about the IRS audit process at   Jsenney@pselaw.com or 937-223-1130. 

AND ONE MORE THING.  Don’t forget capital loss carryovers you have from prior years.  You can only deduct $3,000 a year of capital loss against active income.  But you can deduct an unlimited amount of capital loss carryover against capital gains.  So make sure you consider realizing some capital gain to offset against your suspended capital losses.  If you are holding appreciated stock that you could sell at a gain, but you want to retain such investment, consider selling the stock to realize the gain, and then repurchasing the stock.  The wash sale rules only apply to losses so you can sell and repurchase at the same price on the same day.  Give me a call or email at Jsenney@pselaw.com or 937-223-1130 if you want to talk about year-end tax planning.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Immigration Law, Litigation, Arbitration, Mediation

Any Relief if I Misclassified Workers?

Somewhat surprisingly, the answer is often “yes.”  Section 530 of the Revenue Act of 1978 generally allows a business to treat a worker as an independent contractor for employment tax purposes regardless of whether the worker would otherwise be treated as an employee under the IRS 20 factor test, so long as the business has a “reasonable basis” for so treating the worker and certain other requirements are met.  The relief provided by Section 530 was originally scheduled to expire in 1979, but was extended permanently. 

Under Section 530, a reasonable basis for treating a worker as an independent contractor is considered to exist if the business relied on:  (1) published rulings or case law; (2) long-standing practice in the industry; (3) past IRS audit results for the business; or (4) some other reasonable basis.  The legislative history to Section 530 provides that it is to be liberally construed in favor of the business.

Section 530 relief does not apply if the worker or any other person doing similar work has been treated by the business as an employee at any time (after 1977) in the past.  Section 530 also does not apply if the worker is a "leased employee" and provides services for another person, pursuant to an agreement between the business and such person, as an engineer, designer, drafter, programmer, analyst or similar skilled worker.   There are additional very specific situations, such as workers who serve as school room supervisors or test proctors, where Section 530 does not apply.

Proper classification of workers is important. But if the IRS determines you have misclassified a worker as an independent contractor, and the worker would be an employee under the IRS 20 factor test, you might be able to use Section 530 to avoid reclassifying the worker and avoid the tax, penalties and interest the IRS attempts to impose.  Please call or email me to discuss any issues you may have with proper worker classification at  Jsenney@pselaw.com or 937-223-1130.  And thanks for sending a copy of SenneySays to your friends.   

AND ONE MORE THING.  If you want to make a charitable contribution, consider donating appreciated assets.  If you donate stock or other assets which have appreciated in value, you avoid paying tax on the gain, and you generate a charitable contribution deduction for income tax purposes.  Give me a call or email at Jsenney@pselaw.com or 937-223-1130 if you want to talk about year-end tax planning.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Immigration Law, Litigation, Arbitration, Mediation

Should My Workers be Employees or Independent Contractors?

Treating a worker as an employee typically costs the employer more than treating the worker as an independent contractor.  If a worker is properly characterized as an employee, the employer will be required to pay the employer-portion of the social security and medicare taxes, withhold the employee-portion of social security and medicare taxes, pay unemployment tax, pay workers compensation premiums, pay the employer-portion of any pension or profit-sharing plan contributions, health plan contributions and other employee fringe benefit programs, provide vacation, sick days and maternity leave for the worker, and otherwise permit the worker to participate in all employer-sponsored employee benefit and welfare programs. 

On the other hand, if the worker is properly characterized as an independent contractor, the employer is not required to provide any of the above benefits, or pay or withhold any of the above taxes.  The employer is simply required to provide the worker with whatever payments are specified in the independent contractor agreement, and the worker is responsible for paying the appropriate income tax, self-employment tax, workers compensation and other taxes related to such payments. 

The IRS looks closely at how employers characterize their workers.  The IRS has a 20 factor test it applies to evaluate whether a particular worker, or group of workers, should be treated as employees or independent contractors.  Although the IRS test includes 20 factors, theses 20 factors can be summarized into 2 main issues.  These issues are: (1) does the employer have the right to control the details of how the worker does his or her job or only evaluate the final product or performance; and (2) does the worker have a real risk of loss.  

If the employer has the right to tell the worker how to do his or her job, when to do it, where to do it, when and where not to do it, the worker looks more like an employee.   On the other hand, if the employee is free to do the job when he or she wants to, using whatever procedures or methods he or she wants to, wherever he or she wants to do the job, using assistants or sub-contractors, and the employer controls only the evaluation of the final product or job performance, then the worker is more like an independent contractor.

If the worker is reimbursed for expense, paid a salary or an hourly wage and is provided a car or tools necessary to do the job, the worker has little risk of loss on the job and looks more like an employee.  To the contrary, if the worker is not reimbursed for expenses, is paid a specified sum for the job and is required to provide his or her own office, transportation and tools, the worker looks more like an independent contractor who runs his or her own business.

Proper classification of workers is important.  If the IRS determines a worker has been misclassified as an independent contractor, the IRS generally goes after the employer to collect any unpaid employee income tax withholding, and both employer and employee social security and medicare taxes.  If this happens, there are some defenses.  The first line of defense is that the IRS is wrong and the worker is properly treated as an independent contractor.  If this does not work, there is a second line of defense based on Section 530.  Section 530 is a piece of legislation that permits the employer to continue treating misclassified workers as independent contractors if certain conditions are met.  More about section 530 in the next Blog.

Please call or email if you have any questions about proper classification of your workers.   Jsenney@pselaw.com or 937-223-1130.  And thanks for sending a copy of SenneySays to your friends.   

AND ONE MORE THING.     If you want to reduce this year’s taxes but don’t have the cash available to prepay expenses, use your credit cards to pay for tax-deductible expenses such as home mortgage, state taxes, charitable deductions.  You can get a tax deduction this year even though you don’t pay off the credit card until next year.  Give me a call or email at Jsenney@pselaw.com or 937-223-1130 if you want to talk about year-end tax planning.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Immigration Law, Litigation, Arbitration, Mediation

Do I Need an Employee Handbook for My Business?

If you have more than 3 or 4 employees, you should seriously consider adopting an employee handbook.  An employee handbook can be an effective mechanism for setting the culture of your business and limiting your business’ liability exposure.  

An employee handbook offers you the opportunity to answer common employee questions and address issues before they arise.  Your employee handbook can be used by managers and supervisors as reference book so they act in a consistent and reasonable manner when dealing with employee issues.  Your employee handbook can also contain a code of ethics for employee behavior, while setting forth employee performance expectations and award requirements.  And your employee handbook can be used as a tool to remind your employees of all the compensation and benefit programs they enjoy as a result of their employment with your company.

There are certain things that should be in all employee handbooks.  At a minimum your employee handbook should generally explain to employees your policies and procedures governing “at will” employment, normal work hours, overtime pay, sexual harassment and non-discrimination policy, alcohol and drug policy, maternity leave, dress code, and use of computers, email, social media and internet for personal matters.

You should avoid putting legalese and references to statutes and code sections in your employee handbook.  The employees often won’t understand what these references mean, and you can set a trap for yourself.  For example, the Family and Medical Leave Act (“FMLA”) allows eligible employees to up to 12 weeks off work during a 12 month period because the employee or his or her family member has a serious health condition, gives birth, adopts a child, or has any qualifying emergency related to the military.  FMLA does not apply to your business unless you employ 50 or more employees within a 75 mile radius.  But if your employee handbook says you comply with FMLA, you can be compelled to comply even if you otherwise would not be required to.  

Before creating an employee handbook it is wise to seek advice from a qualified employment law attorney.  We can help you if you want to create or review an employee handbook.  Please call or email if we can assist you in any way with your employee handbook  at  Jsenney@pselaw.com or 937-223-1130.  And thanks for sending a copy of SenneySays to your friends.   

AND ONE MORE THING.     Social media enables people to communicate via the internet to share resources.    The National Labor Relations Board has issued a report regarding the protected nature of employees' Facebook, Twitter and YouTube postings. This report is a guide not only for Union employers, but also non-Union employers.  Attorney Matt Stokely of PS&E has written the following article summarizing this NLRB Report.   Give him a call at 937-223-1130 to discuss any aspect of social media postings by employees.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Immigration Law, Litigation, Arbitration, Mediation

How Do I Fire a Problem Worker?

Ohio is an “employment at-will” state.  That means in Ohio you can generally fire anyone, at any time, with or without a reason.  But there are some situations that are not within the scope of the employment at-will doctrine or that require special handling. 

If you have executed an employment agreement with the employee, and such agreement provides for a specified term of employment, then firing the employee prior to the end of the term would be breach of contract and subject you to damages.  If you have a union workforce and you are firing a union worker, you will need to comply with the firing procedures set forth in the collective bargaining agreement or risk having the union bring labor relations charges against you. 

If the employee you are terminating is over 40, is disabled, is a woman or is a minority, you may find that the terminated employee makes claims of wrongful discharge based on age, disability, race or sex discrimination.  To defeat such claims you need to properly document the "non-prohibitted" reason you are firing the employee.

When terminating an employee, it is best to have a system and to follow the system. You should have regular reviews where the employee’s performance and problems are evaluated and addressed.  If an employee is tardy, or absent, or fails to follow instructions, or is insubordinate, or is simply incompetent, you need to document such matters when they occur.  The employee should be given a “pink slip” and such slips should become part of the employee’s personnel file.  The employee personnel files should be kept under lock and key so employees can’t remove evaluations and reprimands from their file. 

Please call or email if you have any questions about how to terminate a problem employee.  And thanks for emailing the SenneySays link to your friends.    

AND ONE MORE THING.     It is that time of year when we need to be thinking about taxes.  Property taxes are billed in installments.  But you can pay the whole thing all at once.  Doing this will reduce your regular federal income taxes for this year.  But this does not help if you are subject to alternative minimum tax (“AMT”).  If you are subject to AMT, you should instead consider deferring deductible tax payments to next year.  Let me know if you have any questions on year-end tax planning in general or any particular issues.  Jsenney@pselaw.com or 937-223-1130.

Serving Dayton, Serving You

Pickrel, Schaeffer & Ebeling Co., LPA, 2700 Kettering Tower, Dayton OH 45423

www.pselaw.com

Tax, Business, ERISA, Employee Benefits, Real Estate, Construction Law, Private Placement Security Law, Employment Law, Workers Compensation, Probate, Estate Planning, Succession Planning, Immigration Law, Litigation, Arbitration, Mediation