Tax Lawyer Blog

A Blog written by the Tax Attorneys for Individuals and Businesses

Can the IRS Revoke Your Passport?

Executive Order 13769, President Trump’s notorious travel ban that caused mass confusion and chaos in airports throughout the country, is being revamped following multiple federal court challenges. That travel ban, however, is not the only government action that aims to restrict human mobility to or from the United States.

U.S. citizens are also potential targets of government travel restrictions. In our February 9, 2016 blog post entitled "New IRS Collection Powers Extend to Passport Revocation," we noted how Section 32101 of President Obama’s Fixing America's Surface Transportation (FAST) Act gave power to the IRS to revoke the passports of individuals with seriously delinquent tax debt. That section has since been formally codified in the Internal Revenue Code.

Revocation or denial of passport in case of certain tax delinquencies

Under 26 U.S. Code § 7345, if you have more than $50,000 in seriously delinquent tax debt, the IRS has the power to have the U.S. Secretary of State revoke your passport (or refuse to issue one). Note that the original debt may have been far less than the $50,000 threshold amount, because that figure includes interest and penalties. Note that the amount is indexed yearly for inflation (see IRC § 7345(f)).

Before your passport can be revoked or denied, the IRS must first filed a notice of tax lien under IRC § 6323 or initiate a levy pursuant to IRC § 6331.

Tax debt excluded from § 7345

Some kinds of tax debt may not lead to passport revocation or denial, such as:

  • Tax debt that is being timely paid pursuant to an installment agreement (IRC § 6059)
  • Tax debt that is being timely paid under an accepted Offer in Compromise or settlement agreement (IRC § 7122)
  • Tax debt that has been suspended following a request for innocent spouse relief (IRC § 6015)
  • The taxpayer is awaiting a timely requested due process hearing before a levy to collect a tax debt (IRC § 6330)

Removing certification and passport restrictions

You generally have 90 days from the date the IRS sends its certification of the tax debt to the State Department to make full payment of your tax debt or enter into an alternate payment arrangement that is acceptable to the IRS.

To resolve errors with the IRS certification during this time period:

  • If you already paid the amount due, you can send proof of payment to the address indicated on Notice CP 508C.
  • If you recently filed a tax return and are owed a refund, the IRS should apply that refund to your tax debt; if it is sufficient to fully pay the amount due, the IRS should remove its certification with the State Department.
  • You may also file a lawsuit in a U.S. District Court or with the U.S. Tax Court. You do not have to contact the IRS or file an administrative claim before filing suit.

When you resolve your tax issue, the IRS should remove or reverse its certification with the State Department within 30 days.

Experienced tax attorneys and litigators

Whenever you disagree with an IRS assessment, we recommend having an experienced tax attorney resolve the matter for you, rather than you doing it yourself.  The tax team at Moskowitz, LLP can help. Call our San Francisco office today.

February 2017: Client Alert

Tax Calendar

February 28

  • Payers must file informational returns with the IRS. (Except certain Forms 1099-MISC with non-employee compensation payments in box 7, which are due before February 1. Excluding previously outlined Forms 1099-MISC, the deadline is March 31, if filing electronically.)
  • Forms 1095-B and 1095-C due to the IRS, if filing on paper.

March 1

  • Farmers and fishermen who did not make 2016 estimated tax payments must file 2016 tax returns and pay taxes in full.

March 2

  • Large employers must furnish Form 1095-B and Form 1095-C to employees.

March 15

  • 2016 calendar-year S corporation Form 1120S income tax returns are due.
  • 2016 calendar-year partnerships Form 1065 income tax returns are due.

March 31

  • Forms 1095-B and 1095-C due to the IRS, if filing electronically. (Employers who have 250 or more employees are required to file electronically.)

 

2016 Tax Preparation

We hope that 2016 was a happy, healthy, and prosperous year for you and your family. It’s that time of year again when you are receiving your annual income and other statements for the purpose of preparing your 2016 individual, corporate, and/or other entity income tax returns.

As such, we wish to remind you to timely file and pay your 2016 tax returns and any additional taxes or estimates that you may owe.

To have Moskowitz LLP prepare your 2016 tax returns, contact Erin Humbles and begin completing our 2016 Tax Organizer.

Along with Tax Season Come the Scams; Don't Be a Victim

One thing we can count on when tax season begins is the scammers coming out from under their rocks. They come up with schemes to trick you in order to steal your ID and file returns under your Social Security number (SSN). They may even email or call you pretending to be IRS or state tax agents, attempting to intimidate you into sending them money to pay fabricated tax liabilities. These crooks take advantage of individuals’ natural fear of the IRS, coercing their marks into making payments without first verifying the validity of the liability.

ID thieves prize three things: your name, Social Security number, and birth date. You should always be very careful about divulging your birth date and SSN. Don’t use them unless absolutely necessary, and always question the requester’s need to know.

You should also be aware that the IRS never initiates contact in any way other than by U.S. Mail. So, if you receive a phone call from out of the blue demanding payment, you can be assured it is a scam. Simply hang up the phone without providing any information. If you receive an email from the IRS, do not click on embedded links or attachments. Doing so could cause malware to be installed on your computer, allowing scammers to access your computer. Contact Moskowitz LLP, if you believe you are the victim of a tax scam.

Additionally, be aware that the IRS:

  ✓ Never asks for credit card, debit card, or prepaid card information over the telephone.
  ✓ Never insists that taxpayers use a specific payment method to pay tax obligations.
  ✓ Never requests immediate payment over the telephone.
  ✓ Will not take enforcement action immediately following a phone conversation. Taxpayers usually receive prior written notification of IRS enforcement actions involving IRS tax liens or levies.

What to do About Tax Penalties

According to the IRS, in 1955, the Internal Revenue Code contained 14 penalties. Fast forward to today, and the number has increased tenfold. Penalties apply on a per-return basis, vary in size from minimal to astronomical amounts, and can increase each year with inflation.

Penalty Relief
If you have been assessed tax penalties, contact our office to discuss Penalty Relief. Penalties can be abated or reduced for various reasons, Including:

  • Reasonable cause. Penalties may be abated when an error is made despite exercising ordinary business care and prudence.
  • Safe harbor for certain de minimis (small) mistakes.
  • Inconsequential omission.
  • Time sensitive. Penalties may be reduced if filed within specific time frames.
  • Small business limitation. The maximum penalty may be reduced based on gross income.

Moskowitz LLP Aggressively Contests FBAR Penalties

Moskowitz LLP will be very active this year litigating FBAR penalties assessed to taxpayers. We currently have three cases that will soon be filed in District Court suing the United States for FBAR penalties, as well as a case to be filed in the United States Court of Federal Claims as to FBAR penalties.

What to do if You Owe Taxes and Cannot Pay Them

We routinely help clients devise delinquent tax liability strategies with the primary goal of resolving a tax dispute with authorities.

For example: When taxes are not paid in full, a bill is received from the IRS. This bill initiates a collection process, which only ends when the bill is paid in full, the government agrees to another settlement, or the taxing agency can no longer legally collect the tax (e.g. the statute of limitations has run). In addition to the original tax bill, various penalties and interest will accrue.

Listen to our recent Podcast regarding your rights and options when it comes to Tax Debts.

Important Tax Changes for Small Businesses

Tax legislation passed late in December 2015 (the Protecting Americans from Tax Hikes Act) extended a number of favorable business provisions and made some others permanent. The provisions can have a significant impact on a business’s taxes for 2016. Here is a rundown of the changes to consider when preparing your 2016 and 2017 returns.

Section 179 Expensing - The Internal Revenue Code, Sec. 179, allows businesses to expense, rather than depreciate, personal tangible property other than buildings or their structural components used in a trade or business in the year the property is placed into business service. The annual limit is inflation-adjusted, and for 2017, that limit is $510,000, up from $500,000 in 2016. The limit is reduced by one dollar for each dollar when the total cost of the qualifying property placed in service in any given year exceeds the investment limit, which is $2,030,000 for 2017, a $20,000 increase from the 2016 amount.

Bonus Depreciation - Bonus depreciation is extended through 2019 and allows first-year depreciation of 50% of the cost of qualifying business assets placed in service through 2017. After 2017, the bonus depreciation will be phased out, with the bonus rate 40% in 2018 and 30% in 2019. After 2019, the bonus depreciation will no longer apply. Qualifying business assets generally include personal tangible property other than real property with a depreciable life of 20 years or fewer, although there are some special exceptions that include qualified leasehold property. Generally, qualified leasehold improvements include interior improvements to non-residential property made after the building was originally placed in service, but expenditures attributable to the enlargement of the building, any elevator or escalator, and the internal structural framework of the building do not qualify.

In addition, the bonus depreciation will apply to certain trees, vines, and plants bearing fruits and nuts that are planted or grafted before January 1, 2020.

Vehicle Depreciation - The first-year depreciation for cars and light trucks used in business is limited by the so-called luxury-auto rules that apply to highway vehicles with an unloaded gross weight of 6,000 pounds or less. The first-year depreciation amounts for cars and small trucks change slightly from time to time; they are currently set at $3,160 for cars and $3,560 for light trucks. However, a taxpayer can elect to apply the bonus depreciation amounts to these amounts. The bonus-depreciation addition to the luxury-auto limits is $8,000 through 2017, after which it will be phased out by dropping it to $6,400 in 2018 and $4,800 in 2019. After 2019, the bonus depreciation will no longer apply.

Can Bartering be an Effective Business Strategy?

Have you ever thought about bartering as a way to get the goods and services you need for your business? A growing number of businesses are finding ways to use the bartering system as a means to avoid using up their company’s cash.

A simple bartering arrangement involves two parties trading items of similar value. For example, let’s say your business owns a building located next to a telephone company. An internet service provider might be interested in storing its equipment in an unused portion of your basement. Instead of paying rent, they offer to provide you with a high-speed internet connection and website.

Complicated bartering may now take place through bartering clubs that give members credits for items or services they contribute. Members can then use the credits to pay for goods or services offered by other club members. This service offers a convenience to businesses, as it can be difficult to find the businesses that offer what you are looking for when searching on your own.

It’s important to note that there are income tax consequences to bartering. To be safe, view your trades as if cash changed hands, since the goods and services are valued, for tax purposes, at their fair market values and taxed accordingly. Also, a bartering arrangement does not always result in a deduction immediately equal to the income you recognized. You might provide a service and recognize income immediately in exchange for some equipment you will end up depreciating over several years.

Call Moskowitz LLP for more information about implementing bartering as a strategy to help your business.