Articles Tagged with “IRS Tax Procedure”

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Between the years of 1993 and 1997, whistle blowers brought forth ten cases accusing medical groups of conspiring to defraud Medicare. Normally, a case like this doesn’t grab my attention; however, as a Florida tax attorney, this medical case caught my eye. I was not interested in whether the claims were false, if the medical companies scammed Medicare, or what other potentially unprofessional practices the group engaged in. Rather, from a tax perspective, I was curious if the settlement payment was tax deductible.

Section 162, Internal Revenue Code (“I.R.C.”) allows a deduction for expenses of a business that are necessary and ordinary. Generally, a settlement claim paid by a business can be properly deducted on its federal tax return. See, Comm’r v. Pacific Mills, 207 F. 2d 177, 180 (1st Cir. 1953). However, under section 162(f), I.R.C., if an expense or payment is a fine or similar payment paid to the government, then the expense is not deductible. This makes sense in that the IRS does not want to grant tax incentives to companies for paying fines and the like. Thus, the question in this case is whether a settlement relating to Medicare fraud is a fine or similar payment.
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Whenever a new potential client comes to your office, it is good practice to run a quick check. Among the initial checks that should be made by a Florida tax attorney or other tax professional is to make sure the person you are speaking to is an officer of the corporation and the corporation is in good standing with its state of incorporation. On May 7, 2013, the United States Tax Court issued an opinion that can be used as a reminder for a tax lawyer or other professional in John C. Hom & Associates, Inc. v. Commissioner, 140 T.C. No 11 (May 7, 2013).
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The story starts with a company incorporating in California in 1986. The company had its rights and privileges to do business in California suspended in March, 2004 through April 13, 2012. On March 16, 2011, the IRS issued a notice of deficiency for over $200,000 in tax, penalties, and interest. On June 13, 2011, the petition was filed to challenge the assessment, and the IRS moved to dismiss the case because the corporation was suspended. The Taxpayer pointed out this fact and argued that, in addition, the notice had the wrong address to challenge the assessment on its face. Assuming the Taxpayer was suspended at the time of filing the Petition, and the IRS sent the notice to the wrong address, who wins?
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Many individuals and businesses receive notices from the IRS in one form or another. The individual, owner, or agent of the business often calls our office asking what they can do to contest an IRS letter. This article was written to give a brief overview of the IRS procedure from first notice to Tax Court.
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The first contact with the IRS is often in the form of an audit notice. The letter is required to identify the type of tax the IRS is auditing and the period for which the taxpayer is being audited. Upon the completion of the audit, the IRS issues a proposed adjustment. The taxpayer has two obvious options at this point; it can either agree or disagree. If the taxpayer agrees the IRS requires the execution of a Form 870. If the taxpayer disagrees with the findings the IRS will issue what is known as a 30 day letter.

If and when the 30 day letter is issued, the taxpayer’s options become more convoluted. If the taxpayer appeals the 30 day letter within 30 days, then the case is sent to the IRS appeals office. This is an important step taken by the taxpayer because, unlike the at the audit level, this is the first time the IRS can consider the hazards of litigation in its settlement negotiations. If the matter is worked out in Appeals at this stage, then Form 870 AD is executed by the IRS and the taxpayer. If the matter is not settled within Appeals or the taxpayer simply ignores the 30-day letter from the start, then after 30 days a 90-day letter issued.
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