Raleigh Estate Planning and Corporate Law Attorneys

Home | Blog

What To Do When The IRS Comes Calling On Your Business

By

Few things strike more fear in a business owners heart than having an IRS agent knocking on the door of their business. If you have ever wondered what to do in this situation, follow these tips:

  1. Ask to see the individual’s credentials.  You will learn a great deal about the nature of the visit based on who is standing before you.  A Revenue Officer will most likely be there to collect unpaid income or payroll taxes.  A Revenue Agent will be there to audit you or your business.  A Special Agent will be there to investigate you or your business for criminal activity.  Special Agents are required to identify themselves and notify you if you are under criminal investigation.
  2. Tell the agent as little as possible, but do not lie.  The agent will likely want to engage you in discussion as soon as possible.  Despite what the agent suggests, he or she is almost never going to go away just because you give them a little information.
  3. Tell the agent you wish to consult a lawyer…and do it!!! As soon as you tell an agent that you wish to first consult with a representative, he or she should suspend the interview.  This will enable you and your representative to determine the correct strategy for dealing with the IRS.  Also, your tax preparer or an experienced tax lawyer will be better able to explain your position to the IRS.
  4. Do not let the agent into nonpublic areas.  An IRS agent has the right to come into public spaces such as your business’s waiting room or a public dining room. The agent may not come into private areas such as your home, business office, warehouse, kitchen, or factory without your permission, a warrant, or a court order.  Don’t invite them in.
  5. Do not give the agent business records or other documents.  The agent may ask to see your business records or other documents, even if you’ve told him or her that you wish to terminate the interview.  Repeat your desire to get professional representation, and decline to give them any paperwork.

If an IRS agent has called on your business or you want to prepare for such an event, contact the attorneys at Wilson Ratledge.

Are You Prepared For Mental Incapacity?

By

A power of attorney enables you to select who it is that you would want to handle your affairs in the event of your incapacity, as opposed to having the court decide this for you.  There are two types of power of attorney in North Carolina, a Durable Power of Attorney and a Health-Care Power of Attorney.

Durable Power of Attorney

The primary purpose of a Durable Power of Attorney is to give another person the legal authority to handle your assets on your behalf during your lifetime.  Absent a Durable Power of Attorney, if you become legally incompetent to handle your property, the court would have to appoint someone to act on your behalf in that regard. That person is called a Guardian of the Estate.

Health Care Power of Attorney

The primary purpose of a Health Care Power of Attorney is to give another person the legal authority to make health care decisions for you if you cannot make or communicate your own health care decisions.  Absent a Health Care Power of Attorney, if you are not able to make or communicate your own health care decisions, the court would have to appoint someone to do this for you. That person is called a Guardian of the Person.

If the same individual serves as both Guardian of the Estate and Guardian of the Person, that person is called a General Guardian.

Naming an Attorney-in-Fact and a Health Care Agent before incapacity is a good idea. It can avoid the unpleasantness and expense associated with having to be declared in incompetent by a court, to have a Guardian of the Person and/or Estate appointed and for the Guardian of the Estate to have to file accountings with the Clerk of Court. It can also avoid unpleasant disputes among family members and maybe even others as to who should be appointed by the Court to act on your behalf.

Your Will May Not Be Legally Binding

By

In the months after a death, procedures and deadlines are far from the minds of the family. However, a death in the family often leads to legal disputes over the deceased’s property. Hard economic times and the increased availability of internet legal forms have led more people to attempt to draft wills, trusts and powers of attorney without the assistance of a lawyer. As a result, will disputes or contests are on the rise.

Even if the deceased has left a will, disputes can arise as to the will’s validity. To be legally binding, a will must be, among other things, signed by the deceased (the testator) and two uninterested witnesses. In order for the will to be “self-proving” the testator and the witnesses must sign in front of a notary and the will must contain specific language regarding the signing by the testator and the witnesses. Also, the testator must have sufficient mental capacity. A testator must understand that a will is being made and how the will affects his or her property at death, what property the testator owns, and who the beneficiaries are (“the objects of his bounty”). If any of these elements is missing, a court can find the will invalid.

In addition, a will can be deemed invalid if it seems likely that the testator wished to do one thing, but a third person coerced or unduly influenced him or her to do something else. The coercion does not have to be physical, and usually is not. Rather, the typical case of undue influence involves a testator who is otherwise competent, but feeble, and a person in a position of trust—a relative, friend, or spiritual advisor—who takes advantage of the person’s frailty, convincing the testator to change his or her will.

Finally, even if a will is valid, the executor under the will has a duty to the testator’s creditor and beneficiaries under the will to administer the estate appropriately and in accordance with the law. If an executor abuses such power, or favors certain interests over others, then such executor may be personally liable for any harm done.

Whether you are the beneficiary under a will that is being challenged, or your loved one has left a questionable will, it is important that you seek the advice of a qualified Raleigh estate planning attorney. Most will challenges must be filed within three years after the will is probated, and even shorter deadlines must be observed in some cases. Similarly, if an agent under a power of attorney, an executor, or a trustee has acted improperly, the law imposes short deadlines for seeking relief.

IRS Warns of Unprecedented Phone Scam

By

The Internal Revenue Service (IRS) is warning taxpayers of a sophisticated nationwide phone scheme that has become “the largest scam of its kind that we have ever seen.” The scheme reportedly involves individuals telephoning taxpayers claiming they represent the IRS and demanding immediate payments with a pre-paid debit card or wire transfer.

Reportedly thousands of victims — taxpayers — have already paid more than $1 million to the fraudulent individuals posing as IRS agents, according to Treasury Inspector General for Tax Administration (TIGTA) Russell George. He stated that his agency has received more than 20,000 reports of contact. Government officials also said that the perpetrators often know the last four digits of the victims’ Social Security numbers and threaten arrest, deportation and removal of driver’s licenses — something the IRS is not authorized to do.

If you feel you have been a victim of this scam, contact Wilson Ratledge and let one of our attorneys assist you.

Excise Taxes

By

An excise tax is a tax on the manufacture, sale or use of goods, or on the carrying on of an occupation or activity. The federal government imposes excise taxes on a variety of activities, including the manufacture or sale of certain products; the operation of certain kinds of businesses; and the use of various kinds of equipment, facilities and products.
Although there are excise taxes on a variety of activities, the excise taxes that affect most consumers and small business owners are on:

  • Fuel (gasoline, diesel, kerosene and compressed natural gas)
  • Communications
  • Air transportation
  • Gas-guzzler automobiles
  • Sport fishing equipment
  • Vaccines

Fuel Taxes
Fuel tax is a common excise tax. Entities involved in blending, refining, transporting, using or selling fuel may be required to register with the government and pay excise taxes. The excise tax imposed on the sale, refining and blending of fuel is complex, with specific requirements for each entity involved in the process. Special rules also apply to different types of fuel. Generally, the tax is imposed at the time the fuel is removed from a storage terminal, upon entry into the United States or upon the sale of the fuel.

Communications Taxes
There is a 3 percent communications tax on amounts paid for local telephone service or teletypewriter exchange service. There are certain exemptions from this communications tax for particular services, such as bundled services and prepaid telephone cards, and for certain users, including nonprofit hospitals and educational institutions.

Air Transportation Taxes
Air transportation taxes apply to amounts paid for the air transportation of people and property and the use of international travel facilities. The tax on air transportation of people has two components: a percentage tax of 7.5 percent on amounts paid for air transportation and a domestic segment tax, which is a flat fee for each segment (a single takeoff and a single landing) of transportation. For 2009, the domestic segment tax is $3.60. There is also an international arrival/departure head tax. In addition, amounts paid for air transportation of property are subject to a 6.25 percent tax. There are exemptions to the air transportation tax for certain situations, including military personnel on international flights, sky diving and particular uses of helicopters.

Other Excise Taxes
The federal government imposes excise taxes on the manufacturers, producers and importers of gas-guzzler automobiles; sport fishing equipment; bows and arrows; tires; heavy trucks, trailers and tractors; coal; and vaccines. The tax is imposed at the time the item is sold by the manufacturer, producer or importer, and title passes.

  • The gas-guzzler tax is a tax on the sale of automobiles that have a fuel economy standard of less than 22.5 miles per gallon. Individuals that import automobiles for personal use may be liable for this tax.
  • There is a 10 percent tax on the sale of sport fishing equipment.
  • The tax on tires is based on weight.
  • The tax on vaccines is a fixed amount (75 cents) per dose of certain vaccines, including common vaccines for measles and mumps, sold by manufacturers in the United States.
  • A producer of coal mined in the United States is liable for tax on the first sale of such coal.

The federal government also imposes excise tax on many less common products and activities. State and local governments may impose excise taxes as well. Failure to file the required returns and pay excise taxes may result in the imposition of penalties, interest and other sanctions.

Contact Wilson Ratledge and let one of the attorneys assist you with your excise tax needs.

WHAT BUSINESS STRUCTURE IS BEST FOR YOUR BUSINESS

By

Choosing from the differing business structures available for the formation of your business can be difficult and the choice depends on your preferences and the work to be performed by your business.

Should it be a limited liability company, a partnership, a sole proprietorship, or a corporation? Whenever you start a business, you will have to select one organizational type from the different business structures. This choice determines how your business will be set up and organized. In most instances, you will probably have to choose between a limited liability company (LLC), a partnership, a corporation or a sole proprietorship.

Making the right choice for your business will generally depend upon the type of business, how you want the business to be run, how many owners the business will have, and the financial situation of the business. It may not be possible to find the business structure that will perfectly fit with the needs of your business, but there are some criteria that you can use to find the one that works the best. These criteria are:

  • The different types of liabilities that come with each business structure
  • The expenses and procedures associated with establishing and continuing to run the various business structures
  • Income tax
  • Investment needs

Varied Liabilities
The general rule for this category is that the more dangerous or risky the activity that your business will engage in, the less personal liability you want to have. For example, if your business is going to be engaging in risky activity, such as window-washing high-rise buildings, or constructing bridges for highways, you will probably want to form your business in a way that will minimize any potential liability that you, personally, will have for anything that goes wrong.

Both corporations and LLCs allow business owners a type of “limited liability,” where anyone seeking claims against the business will have a very hard time placing personal liability on you as the owner. Conversely, if you were to organize your business as a partnership or a sole proprietorship, you could be personally responsible for anything the business did wrong.

In a general partnership, every partner can be held personally liable for any claims against the business. For example, if a plaintiff won a lawsuit against the partnership for $1 million, and every other partner, including the partnership, except you was broke or in bankruptcy, you would probably be responsible for paying out the entire $1 million. The same is true for a sole proprietorship, except that there is no one to spread the liability to because you are the sole owner. As a sole prorietor, you are personally responsible for all liabilities incurred by your business.

Expenses and Procedures
If all of the business structures were placed on a scale that depicted how difficult and expensive it is to establish and maintain them, partnerships and sole proprietorships would be near the bottom. In general, there is no special paperwork that needs to be filed in order to establish either of these business structures. In addition, there are rarely any fees associated with establishing or maintaining either of these business structures.

LLCs and corporations, on the other hand, are almost always more difficult and expensive to establish and maintain. In order to establish a corporation or limited liability company, you must file “Articles of Incorporation” with your secretary of state and pay fees associated with the incorporation. The details of the articles of incorporation and is the amount of the fee will vary depending upon the state where you set up your business. In addition, when deciding to form a corporation or LLC, the owners of the business must decide which officers to elect to run the company. The officers typically must include at least a president, vice president and secretary. LLCs and corporations must keep specific and detailed records of any important business decisions, and follow many other formalities that are associated with these business structures.

If you are forming a business on a limited budget or a tight timeframe, it would probably make more sense to use one of the simpler forms of business structures – either a sole proprietorship or a partnership. You would use a sole proprietorship if you are going to be the only owner of the business, and a partnership if there is going to be more than one business owner. If you are going to be engaging in a risky business activity, however, you may want to put in the time, effort and money associated to organize your business into a corporation or LLC in order to gain the advantages associated with limited personal liability.

Income Taxes
The easiest way to think about the different income tax structures that these business structures will use is to break them into two categories — one comprised of those business structures where the business owners pay taxes on business profits, and one that includes all business structures where the business owners do not pay taxes on business profits.

The first category includes sole proprietorships, partnerships and LLCs. These business structures are often referred to as “pass-through” tax entities because the taxes on the business profits and losses pass through to the business owners on their personal income taxes. This means that owners of these three business structures can expect to have complex income tax returns.

Business owners of sole proprietorships, partnerships and LLCs must report and pay taxes on all net profits from their business, even if they take no money out of the business’ account during the tax year. For example, suppose a partnership that has four general partners makes $1 million in a tax year. The partners do not take any money out of the business account because the business must pay its bills in the next tax year. However, because the business had $1 million in net profit for the tax year, each partner must report $250,000 of income on his or her personal taxes.

Unlike the pass through tax businesses, the owners of a corporation do not pay taxes on the net business profits of the corporation. Instead, the business owners of a corporation pay taxes only on the profits they actually take from the corporation in the form of salaries, dividends and bonuses.

Because a corporation is a separate tax entity, it must pay taxes on any profits that remain within the company during a tax year, and also on any profits that it pays out in the form of dividends to shareholders.

There is a tax benefit to forming your business as a corporation. The owners of a corporation do not pay taxes on any profits that the corporation keeps, and the corporation pays taxes at a lower rate than do some individuals. This means that a corporation and its owner may pay less in the form of taxes than if the owner had organized his business as a sole proprietorship, or any of the other business structures.

Investment Needs
Structuring a business as a corporation allows a business to sell shares of ownership in the business through stock offerings. This is different than the other three business structures, which do not allow the selling of part of the business through the sale of stocks. Because of this investment scheme, it may allow owners of a corporation to attract investors and retain employees more easily by offering stock.

If you never plan on having your business go on sale to the public, however, and don’t need the investment incentives to retain employees, you probably do not need to go through the added procedure and cost of forming a corporation. If you desire the limited personal liability that comes from a corporation, you could instead form your business as a LLC. An LLC provides many of the advantages of a corporation while remaining more flexible.

Changing it up
You shouldn’t worry about having your business organization plan set in stone, it rarely is. Often, businesses that start out as sole proprietorships or partnerships grow and convert to LLCs and corporations. If your business needs and plans change, your business structure can probably change with them. Contact Wilson Ratledge and speak with one of the attorneys today about the best structure for your business.

Contact Wilson Ratledge and have one of the attorneys assist you with your business planning needs.