Taxes

Tax season can be one of the most stressful seasons for individuals and business owners. While some may perceive the IRS as always being out to get them, this perception is not based on facts. In some cases, the IRS creates systems aimed at helping the taxpayer recover from tax errors that could otherwise result in hefty fines.

One example of such a system is the innocent spouse relief. Innocent spouse relief is tax relief provided by the IRS to offer individuals relief from the responsibility of paying taxes, accrued interests, and penalties resulting from inaccurate reporting on their taxes by their ex-spouse or current spouse. 

If the IRS is coming after you for underreporting errors made by your spouse or ex-spouse, working with an experienced tax controversy attorney can improve your chances of getting innocent spouse relief. 

Understanding North Carolina’s Innocent Spouse Relief 

If you live in North Carolina with your spouse or if your spouse lives outside North Carolina but has taxable income in North Carolina, you are allowed under the law to file a joint single tax return. By filing a joint tax return with your spouse, you expressly agree to pay all taxes, accrued penalties, and interests due on your joint tax return.

Oftentimes, individuals who file their tax returns jointly with their spouses find themselves being held responsible for the mistakes of their ex-spouses by the IRS.  If you find yourself in such a situation, applying for innocent tax relief can absolve you of the consequences of the mistakes made by your spouse or ex-spouse.

Classification of Innocent Spouse Relief According to the IRS

Innocent spouse relief can be classified into three types:

• Basic innocent spouse relief
• Separation of liability relief
• Equitable relief

1. Basic Innocent Spouse Relief

This type of relief is designed to relieve you of the responsibility of paying taxes, interest, and penalties resulting from the mistakes of your spouse or ex-spouse. This form of relief applies if you can establish that you didn’t know or have reason to know that the filed returns were erroneous.

2. Separation of Liability Relief

Under this form of relief, the taxes, penalties, and interests owed to the IRS are divided equitably between you and your ex-spouse. This type of relief applies if you are no longer married to your spouse and are not living in the same household for 12 or more months, from the date of separation to the date you file for innocent spouse relief.

3. Equitable Relief

If you don’t qualify for either of the two options listed above, you may still apply for innocent spouse relief by electing equitable relief. This option applies if the underreported or unreported item is attributed to your spouse, or the reported tax is correct but wasn’t paid in full with the returns.

Innocent Spouse Relief Application Process

On the IRS website, you will find a questionnaire that can help you determine eligibility for the relief. Alternatively, a tax lawyer can guide you through the process. 

After establishing that you qualify for innocent spouse relief, the next step is correctly filling out Form 8857 and submitting it to the IRS. After submitting the form, the IRS will take time to review your case and contact your spouse before making a determination. 

How the Innocent Spouse Relief Works

After the IRS approves your innocent tax relief, the interests, penalties, and taxes directly related to items on your tax returns that are underreported or unreported items will be collected from your spouse or ex-spouse. However, not all taxes qualify for innocent tax relief. Items such as shared responsibility payments, household employment taxes, business taxes, and penalties on trust fund recovery for employment taxes do not qualify. 

Our Raleigh Tax Controversy Team Can Help

If you are experiencing a tax issue where you may qualify for innocent spouse relief, Wilson Ratledge can help. Our team of experienced tax controversy attorneys can review your situation and help plan the best path forward to help resolve your tax issues. Contact us today to schedule a consultation!

IRS audits are thorough and often result in penalties (and prosecutions in cases of criminal conduct). Consequently, many people are alarmed when they get a letter from the tax man notifying them of an audit of their taxes. 

There is nothing to be worried about if you don’t have anything to hide. However, it is still important to prepare properly for the audit to expedite the process and avoid harsh consequences. Here is a brief guide on what to do if the IRS is auditing you. 

Know What to Expect 

One of the first questions that will pop up in your mind when you receive the audit notification is, “what will happen now?” It’s easy to start to worry about worst case scenarios – instead, conduct quick research to familiarize yourself with IRS tax audits. 

Start by reading the audit letter from the IRS carefully. The letter will contain important information regarding the audit, including:  

• Why you have been selected for the audit 
• The steps to take to comply with the audit 
• The deadline for complying with the request 

It is important to find out how the IRS intends to conduct the audit. The IRS can take one of three approaches: 

• Correspondence audit (by mail)
• An office or desk audit (at the local IRS offices)
• A field audit (in person at your home or business) 

Finally, don’t hesitate to ask as many questions as you may have regarding the process and why you were selected for the audit. Ensure that you get your information from trustworthy sources to avoid potentially costly confusion. 

Prepare Your Responses & All Relevant Documents 

The IRS will include instructions in the notification letter on what to do to comply with the audit. These instructions mostly entail providing the IRS agents with receipts and other financial documents relevant to the audit process. 

Some of the common documents required in an IRS audit include: 

• Bills 
• Receipts 
• Bank statements 
• Copies of old tax returns 
• Tickets 
• Canceled checks 
• Medical records 
• Loan agreements 

Please ensure that these documents are authentic and up to date. Whether you’re being audited or not, it is a good idea to properly store and retain your financial records and documents in preparation for situations such as these. 

It is important to comply with these requests on time to expedite the process and avoid harsh penalties – don’t hesitate to request a postponement to collect and organize all of the requested documents. Additionally, it is advisable to avoid providing more documents than requested (some people do this to try to prove their innocence), as this may send the auditor looking for more errors.

Hire a Tax Attorney 

The IRS uses complex algorithms to identify potentially fraudulent practices that warrant an audit. Additionally, tax law and calculations are just as complex – often too complex for the ordinary person to follow. It is easy to make mistakes that warrant harsh penalties, such as expensive fines and prosecution (with the potential for serving time in jail in some of the worse cases). 

Many times, it is advisable to hire a tax attorney familiar with these types of proceedings before starting correspondence with the IRS. Tax attorneys are intimately familiar with tax law, and so your attorney will do their best to shield you from unfair treatment from the IRS. Other benefits of hiring a tax attorney include: 

• Helping you find and prepare all documents requested by the IRS 
• Reducing the risk and severity of tax liabilities, penalties, and other charges resulting from the audit 
• Defending you against allegations of wrongdoing and filing an appeal when necessary 

It is especially important to hire a tax attorney if the audit will be held at the local IRS office or at your home or workplace, or if you often engage in large and complex financial transactions.

Wilson Ratledge has helped clients of all sizes with tax audits and other tax controversy situations with the IRS – call us today at 919-787-7711 today to schedule a consultation!

The tax season can be a challenge for most businesses and individuals. Filing taxes is a daunting task, especially if you are unsure of what to include. It’s therefore essential to get the right help when you find yourself in this position.

The two most popular options are a Certified Public Accountant (CPA) or a tax attorney. However, it can be challenging to know if a CPA or a tax attorney is the right choice. The right choice depends on your goals, unique needs, and your status with the Internal Revenue Service.

Hiring the right professional is crucial to ensure you don’t fall behind with tax filing and payments for your North Carolina business. Read on to learn the difference between a tax attorney and a CPA and who best suits your case.

Tax Attorney

A tax attorney is an expert in legal matters related to filing taxes. They understand the ins and outs of the IRS tax code and can help you with anything from developing a plan for your business taxes to representing you in court.

Tax attorneys offer business guidance and represent you in legal matters like audits and disputes with the IRS and other federal tax authorities. They can provide advice and guidance on complicated legal issues, including estate planning, tax disputes, business law, and trusts. Just as most other attorneys specialize in working with certain types of clients, tax attorneys can specialize in certain verticals or types of clients, so make sure the tax attorney you choose is a good fit for your organization.

One common skill between tax attorneys is expertise in dispute resolution. Tax lawyers undergo years of training to help you go up against federal tax authorities like the IRS during adverse tax actions. Although most are skilled in dispute resolution, if you are in a tax controversy situation, it’s important to find an attorney that specifically works in that area like Wilson Ratledge.

The following are various reasons why you may need to consult a tax attorney:

• Criminal tax investigation and defense
• IRS tax audits
• International business transactions
• When starting a business and require legal guidance on the tax treatment and your company structure
• You have a lawsuit against the IRS

Certified Public Accountant

Unlike tax attorneys, CPAs are educated in maintaining business and financial records. They help you avoid tax filing problems while tax attorneys work to help you straighten problems that have already occurred.

CPAs help you follow the tax code, file and correct your tax returns. They know how to abide by federal laws and will help you maximize your tax benefits while lowering your tax liability.

It’s essential to develop a strong relationship with a CPA, especially when you have a large amount of money coming in and out.

You need a CPA in the following situations:

• Filing taxes
• Managing payroll
• Creating financial risk management strategies
• Undergoing an IRS audit
• Finding tax credits and deductions, you qualify for
• Acquiring, merging, or selling a business
• Determining the proper business structure
• Choosing between accrual or cash accounting
• You need help figuring out a long-term tax plan

Do You Need a Tax Attorney or CPA?

If you still are unsure whether you need a tax attorney or CPA, consider your tax situation. If you have complicated business or personal taxes and want to minimize tax liability, hire a CPA. If you are in trouble with the IRS or dealing with a tax controversy issue, a tax attorney is your best fit. Remember, don’t hire a tax attorney when you need a CPA. This will create more trouble and will cost you more than it would initially.

A tax attorney will help you in tax planning to minimize your tax liability by structuring your assets. If you only need help with tax preparation and filing and have no trouble with the IRS, consider hiring a CPA.

Confused and Overwhelmed? Wilson Ratledge Can Help

Taxes can be daunting. Understanding your tax situation will help you choose between a tax attorney and a CPA. While tax lawyers provide legal advice, CPAs help you in tax preparation and avoid tax filing problems. If you have an overwhelming tax situation that you don’t understand, contact Wilson Ratledge today to schedule a consultation.

The Paycheck Protection Program (PPP) is one of the ways the United States government helped small businesses during the pandemic. In 2020 alone, the program distributed over $500 billion in loans. Businesses that were struggling because of the COVID-19 pandemic had the option of using the Paycheck Protection Program.

The PPP loan was, therefore, the most popular way for small businesses to recover. There is no doubt that the PPP loan has been helpful for small businesses, but its tax implications have been confusing for most business owners. If you are wondering how the PPP programs work and if a PPP loan is taxable in North Carolina, then continue reading.

How do PPP loans work?

The Paycheck Protection Program (PPP) is one of the relief measures in the Coronavirus Aid, Relief, and Economics Security Act (CARES Act). The PPP loan program has been authorized to provide billions in forgivable loans to small businesses. The main aim of the PPP loan is to ensure employees remain on the payroll and fill gaps in mortgage interest, rent, supplier costs, and other related expenses.

The PPP was meant to assist both nonprofit and for-profit organizations to maintain their payroll during the COVID-19 crisis and to keep the economy afloat. Under the PPP program, the Small Business Administration (SBA) provides federally insured loans for the covered expenses. 

How to get PPP loan forgiveness

You would benefit from the loan forgiveness if your business meets the eligibility requirements. If you had a PPP loan, it can be forgiven as long as you have used 60% of the loan on employee payroll costs. You are allowed to use the other 40% on rent obligations, mortgage interest, utility costs, supplier costs on essential goods, and personal protective equipment.

Forgiveness of the PPP loan is based on your continuing to pay your workers at the normal levels for eight to 24 weeks after getting the loan. If you are seeking PPP loan forgiveness, you have to fill in the applications and submit them to the private lender where you got the loan. 

Are PPP loans taxable in North Carolina?

After the Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA) was passed into law, forgiven PPP loans are tax-exempt and not considered part of the taxable income. At the federal level, the forgiven PPP loans are tax-free, which is different from how such loans are normally treated. If your business received the Paycheck Protection Program (PPP) loan, it’s not considered income for federal income tax purposes. The expenses covered by using the PPP loan are also deductible under federal tax purposes.

Traditionally, that was not the case at the state level. In North Carolina, prior to June 2020, you would have to pay tax on forgiven loan proceeds.

The state, however, has taken steps to address the issue of forgiven PPP loans being taxable. North Carolina’s governor, Roy Cooper, signed House Bill 1080 to incorporate loan forgiveness under section 1106 of the CARES Act. Under the new Bill, North Carolina will improve cash flow for organizations that have been impacted by the pandemic. Therefore, North Carolina now joins the list of states that have to provide tax relief for small businesses with PPP loans.

Contact Our North Carolina Tax Attorneys

If you have questions about loan forgiveness or other business tax-related issues, contact our North Carolina tax attorneys today – call us at 919-816-2683 or fill out our online contact form to schedule a consultation with our team.

It can feel a little overwhelming when you owe the Internal Revenue Service (IRS) or the North Carolina Department of Revenue (NCDOR) money. The IRS is one of the few entities to have inordinate power to reclaim funds owed, including placing a lien on your bank accounts, home, and businesses.

You may find that they’ve garnished your wages, reducing your paycheck. They can also seize items of value, sell them, and use the proceeds to pay off your debt. Yes, there is good reason to worry when you owe money to the IRS. However, an offer in compromise might help you settle the debt. This guide can help you understand your options.

What is an Offer in Compromise?

With an offer in compromise, you’re able to settle your tax debt by paying a lower amount than you owe. The IRS accepts an offer in compromise when it’s an amount that they can reasonably expect to recoup over a reasonable amount of time even though it isn’t the full amount. 

When deciding whether to accept an offer in compromise, the IRS and NCDOR consider several things about your unique circumstances, including:

• Income
• Living and other expenses
• Equity available in assets
• Ability to pay the amount owed

If you qualify for an offer in compromise, you can lower your tax bill and get out of debt. There are a few basic requirements to even begin to be considered eligible. These include:

• You can’t currently be in bankruptcy.
• You need to have filed all of your most recent tax returns.
• You need to have made some estimated tax payments.
•  If you’ve filed for an extension for the current year’s tax return, it isn’t considered. 

When you file an offer in compromise, it’s important to have a tax attorney on your side to help you navigate the procedure. The application requires a fee to process and might require a payment on your current debt. Here’s a look at the most commonly asked questions:

FAQs

If the IRS accepts my offer in compromise, do I need to pay back all the money at one time? 

No, the IRS will accept either a lump sum or monthly payments. However, if you opt for monthly payments, make sure you don’t miss any. When the NCDOR accepts an offer in compromise, you must pay the full amount minus any payment you made with the application within 30 days. 

While the offer in compromise is considered, will interest continue to accrue on my account?

Yes, both the IRS and NCDOR debts will continue to accrue interest while your offer is considered. 

How much money should I offer? Is there a percentage or formula?

No, there isn’t a set percentage or formula that the IRS and NCDOR use to determine if the offer is reasonable. You need to determine how much you can afford to pay based on your income, assets, and expenses. If the offer is too low and gets denied, you can always reapply with a larger offer. 

What happens if my offer in compromise is declined? 

If you filed the offer in compromise with the IRS, you have 30 days to appeal the decision. You can even file an application for a new offer in compromise. The NCDOR doesn’t offer an appeals process, and the decision is final. However, the NCDOR can make a counter offer that you can either accept or reject. 

An offer in compromise is a legal way to lower your debt to the IRS and the NCDOR, so you can repay it and escape any liens placed on your property. It’s a complicated application process, and you’ll need to provide financial documentation.

If you have questions about the offer in compromise process, contact our North Carolina tax attorneys today – call us at 919-787-7711 or fill out our online contact form to schedule a consultation with our team.

IRS tax debts can be a source of frustration, uncertainty and stress. If you’re facing a tax burden that you can’t pay, an Offer in Compromise may be one way to settle your debts. When the IRS accepts your offer, the Offer in Compromise is one way that you can resolve your overdue taxes with the IRS and get a fresh start. 

What is an Offer in Compromise?

An Officer in Compromise is a tax relief program of the Internal Revenue Service that resolves an outstanding tax liability for less than the entire amount due. The IRS allows qualifying taxpayers to make an offer to settle their entire tax debt for a fraction of the total debt. The goal of the Offer in Compromise program is to collect at least some of the outstanding tax debts while giving the taxpayer the opportunity to become current on their obligations to the United States government. 

How does an Offer in Compromise work?

An Officer in Compromise occurs when a tax debtor makes an offer to the IRS to pay a portion of their outstanding tax debt. IRS representatives decide whether to accept the offer or reject it. There are requirements for all offers and guidelines for whether the IRS can accept the offer. If the IRS accepts the offer, the debtor pays the taxes according to the settlement agreement. The remaining debts are discharged and the debtor once again returns to paying taxes according to U.S. tax law. 

Is an Offer in Compromise right for me?

Whether an Offer in Compromise is right for you depends on your tax liabilities, the likelihood of the IRS accepting your offer and your ability to pay according to the terms of the offer. The IRS accepts about 40 percent of the offers they receive. Because there’s a downpayment that goes along with making an offer, it’s critical to make an offer that the IRS is likely to accept. An Offer in Compromise may be right for you if you’re unable to pay your tax liability and you can make a reasonable offer according to IRS guidelines. 

Why would the IRS accept an Offer in Compromise?

It may seem like the Offer in Compromise program isn’t a good deal for the government. If the taxpayer owes the entire tax debt, it may seem more logical for IRS agents to continue to try and collect the debt. There are several reasons why the IRS participates in the OIC program. 

It’s more advantageous for the IRS to collect the debt quickly. Even if they collect a lower amount, it may be worth it to the IRS to have the money now instead of later. The longer the debt drags on, the less likely the government is to collect anything at all. In some circumstances, IRS agents believe that it’s better to get less now than risk collecting nothing at all. 

Why should I make an Offer in Compromise?

An Offer in Compromise can help you in multiple ways. If you’re unable to pay your tax debt, an OIC can help you resolve the issue with the IRS for an affordable amount. Also, while an OIC is under consideration with the IRS, the IRS stops garnishments and temporarily ceases asset seizure proceedings. It may be advantageous to you as a debtor to stop garnishments and make payments under the terms of the OIC. An experienced tax attorney can help you determine if it’s in your best interests to make an offer. 

How do I make an Offer in Compromise?

There are two ways to make an Offer in Compromise. The first way is to make a lump sum payment. With a lump sum payment, you pay 100 percent of the offered amount within five months. You must also make a 20 percent down payment when you make the offer. 

The other type of OIC is an offer for periodic payments. If you offer to make periodic payments, you must pay within 24 months of the IRS accepting the offer. You must make the first payment with the application. 

To determine what amount you have to pay, the IRS looks at how much they’re likely to collect if they continue to try and collect the entire tax liability. If the IRS finds that you can pay your debt in full, they’re unlikely to agree to a settlement. The amount that the IRS believes you can pay depends on your assets and your disposable income. 

The IRS calculates the value of your assets based on what they’re worth if they’re sold quickly. They also factor in your disposable income to determine what’s called your net realizable value. If you make an offer that’s at least as much as your net realizable value, there’s a good chance that the IRS is going to approve the offer. 

Am I eligible to make an Offer in Compromise?

You’re eligible to make an offer in compromise if several conditions are true: 

• There’s an outstanding tax bill
  
• It’s an economic hardship to require you to pay the full amount or there’s a doubt about the validity of the full amount
  
• You file all of the required tax returns
  
• Estimated tax payments are up to date if you’re self-employed or own a business
  
• If you’re a business owner, payments are up to date for employees
  
• There’s not a pending bankruptcy proceeding
  

How can I make an Offer in Compromise successful?

If you’re considering making an Offer in Compromise, it’s critical to make a payment that’s realistic based on IRS guidelines. You want your offer to be the lowest amount that the IRS is going to accept. An experienced estate planning attorney can help you determine if an Officer in Compromise is in your best interests. They can also help you understand how it can benefit you and what steps you need to take to make your offer successful.