This office does not handle:
  • Unemployment Insurance Benefits (UI)
  • State Disability Issues (SDI)
  • Worker Compensation Issues
  • EDD Overpayments
Miscellaneous
  1. Home
  2.  » 
  3. Practice Areas
  4.  » Miscellaneous

Los Angeles Hardship Relief Lawyer

Knowledgeable Tax Lawyer Robert S. Schriebman

There are many situations where people, through circumstances outside of their control, find themselves unable to pay their tax debt. The IRS and state taxing authorities will continue to attempt to collect that debt unless you take action. It can be a challenge to communicate your situation to appropriate authorities and get the relief you need.

At Robert S. Schriebman, A Professional Law Corporation, we strive to make the taxation process fair. When you are suffering a hardship, whether it is economic, mental or physical, and cannot pay your tax debt, we can help you get control of the situation. We can stand up to the IRS and get you the result you deserve.

From our offices in Los Angeles, hardship relief attorney Robert S. Schriebman has helped clients throughout California and across the nation. Call us at 877-824-1563 or contact us online to schedule an appointment to discuss your case.

A Difficult ProcessWhat to do When You Can not Pay your Taxes

Proving hardship and having your account given currently not collectible status is not easy. You must demonstrate to the IRS that it is impossible for you to pay the debt you owe. The IRS requires more than a showing that you have no money. You must present proper evidence regarding your expenses and the hardship you are claiming. The process can be highly personal and confusing. You need someone who can stand up to the IRS and fight for you in the right way to convince the IRS to grant you the proper relief.

If you qualify for a hardship, there are many ways in which you can improve your situation based on your new tax treatment. We can help you understand your options and make sure you receive the full protection your situation warrants.

If you are unable to pay your tax debt due to a hardship, contact Robert S. Schriebman, A Professional Law Corporation. Call 877-824-1563 or contact us online to schedule an appointment.

ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – WHAT IS “CURRENTLY NON-COLLECTIBLE STATUS?” HOW DO YOU GET IT?

By Robert S. Schriebman
2021

Introduction

Currently non-collectible status is a new term for what IRS collectors used to call “53 status.” It was called 53 status because IRS collectors (Revenue Officers) used Form 53 to make the determination that an account was not collectible at the current time. Then, as now, when you owe the IRS, you have 4 options:

  • Pay in full if you have the money.
  • Work out an installment payment arrangement.
  • Offer in Compromise.
  • An account not currently collectible – a hardship suspension.

The IRS has its accounts receivable just like a commercial enterprise in the private sector. In the Collection Division accounts receivable arise in several ways. A tax return may be filed without full payment. Additional taxes, penalties and interest can be generated by an examination or by recomputing the taxpayer’s returns. If the taxpayer’s check is not honored by his bank when presented for payment, a receivable will be noted on the IRS computer.

The IRS realizes that all receivables are not going to be paid. There will be some uncollectible accounts. An account may be suspended due to hardship and the inability of the taxpayer to pay. These matters generally involve lack of equity in assets, undue hardship, or lack income- collection sources. If a taxpayer has any assets or sources of income, which are subject to levy, an account may not be reported as currently non-collectible.

An IRS Revenue Officer (RO) does not want to interfere with a taxpayer’s ability to provide necessary living expenses. To that end, an RO takes the following factors into consideration in determining whether a taxpayer’s case constitutes undue hardship and is currently non-collectible:

  • Family size
  • Necessary living expenses according to latest releases published by the IRS and the Dept. of Labor.
  • Income from all sources, both taxable and non-taxable including income of a non-liable spouse used for the necessary living expenses of the family.
  • Anticipated increases or decreases in income.
  • Asset equity – if the taxpayer has no equity or nil equity, this is a very strong deterrent to collection.
  • Payment ability.
  • The age and health of the taxpayer.

Important Things to Know

There are things you must know that are very important when considering whether you qualify for currently non-collectible status:

  • As we will see in the Webb case below (Sherrie L. Webb v. Commissioner., TC Memo 2021-105, August 31,2021), in order to qualify you must submit the required supporting documentation to the RO. Failure to do so is not helpful!
  • Interest continues to run, and is compounded daily on the suspended account.
  • The IRS will want to review your financial position periodically to determine if hardship suspension should be continued.
  • The suspension procedure neither extends nor terminates the collection statute of limitations.

The Webb Case

Sherrie Webb was not happy with the results of her Collection Due Process. Ms. Rego, the Settlement Officer, refused to give Sherrie currently non-collectible status. Sherrie refused to supply Ms. Rego with the required documentation necessary to prove that she could not pay the IRS. In addition, Sherrie insisted on making annual contributions to her section 401(k) account. Sherrie took the IRS to the US. Tax Court. The judge ruled against her and totally supported Ms. Rego’s position.

Conclusion

You can’t have your cake and eat it too, when it comes to a hardship suspension. The taxpayer has the burden of proof and the duty to supply the IRS with all information and documentation necessary to prove that taxes cannot be paid. Taxpayers must show the IRS that they have no available sources of income to pay delinquent taxes.

***

Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.

Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Web Site Article 594

ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – INTEREST ABATEMENT IN SALE TAX AUDITS

By Robert S. Schriebman
2021

Introduction

It does not happen very often, but interest may be reduced or removed entirely in tax audit assessments. The process is known as abatement. Most taxing agencies provide for the abatement of interest under very limited circumstances. California abatement statutes are modeled after the IRS version set forth in IRC § 6404(e). In a nutshell, interest abatement is allowed where the failure to pay the tax is due in whole or in part to an unreasonable error or delay by a governmental employee when acting in his/her official capacity in performing a ministerial or managerial act. In addition, such error or delay shall be deemed to have occur only if no significant aspect of the error or delay is attributable to an act, or failure to act, on the part of the taxpayer.

In California interest abatement rules apply to the FTB and the CDTFA. The statute for FTB interest abatement is found in R&TC § 19104. The statute for CDTFA interest abatement is found in R&TC § 6593.5. There are no interest abatement statutes for the EDD. Interest cannot be abated in an EDD assessment. Although my primary specialty involves EDD audits and related issues, I saw in Del Mar the same potential exposure for unpaid EDD taxes.

Most of the time the taxpayer must take the initiative and confront the government with their errors and request interest abatement, but one recent case involved the government notifying the taxpayer – that’s a switch!

On April 16, 2021, the Office of Tax Appeals (OTA) issued its decision in the Appeal of G. Jimenez dba El Unico, OTA Case No. 19125595.  This article will discuss this case and show what is required in order to successfully seek the abatement of interest.

The El Unico Case

The El Unico (EU) case involved a sales tax audit and resulting assessment.  Ms. Jimenez owned and operated a small Mexican restaurant that only provided limited outdoor seating.  The CDTFA audited her for the period of October 1, 2013 through September 30, 2016 and issued an assessment which she contested.  The assessment process provided for an administrative appeal as well as a settlement process. For unknown reasons this process took about 13 months longer than it should have taken.  The CDTFA took the initiative and informed Ms. Jimenez that there was, on their part, an unreasonable delay.  It offered to abate the substantial portion of interest providing Ms. Jimenez submitted a written statement under penalty of perjury as mandated by RT&C § 6593.5(c).

Ms. Jimenez filed a petition for review before the OTA challenging the audit and requesting a reduction in the assessment and also requesting an abatement of interest.  The OTA ruled against her on her challenge to the audit and her request for an assessment reduction.  However, when it came to the issue of interest abatement, the OTA upheld her request but ordered her to provide the required written statement under penalty of perjury.

Conclusion

Interest abatement is allowed for the IRS, FTB, and CDTFA.   There are no interest abatement allowances when it comes to the EDD.  The statutes for these procedures are stated above.  Only the CDTFA rules require a written statement under penalty of perjury.  It is important not to confuse interest abatement rules with penalty abatement rules – we are talking apples and oranges.

***

Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.
Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Web Site Article 590

ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – TRAPS FOR THE UNWARY WHEN PURCHASING CORPORATE STOCK

By Robert S. Schriebman
2021

Introduction

Every now and then a case crosses my desk that breaks my heart and causes me to scratch my head at the same time.  I wonder how the people involved got into this situation in the first place and why they did not see the hidden traps just waiting for them.  Often, I find that they made choices with consequences that could have been avoided.   This confronted me when I read the sales tax case involving a Mexican restaurant known as Las Playas #10, Inc. dba Del Mar.  Well-intended good people faced economic ruin because they may have failed to consult with a knowledgeable tax advisor before going down the rabbit hole.  This article will discuss the Del Mar case and the traps that the buyers fell into not only when they bought the business but what may happen to them if the business is forced to close. Las Playa #10, Inc., dba Del Mar, OTA Case No. 18073485, April 21, 2021.

Although my primary specialty involves EDD audits and related issues, I saw in Del Mar the same potential exposure for unpaid EDD taxes.

The Del Mar Case

The Del Mar case illustrates the hidden traps when the stock of a corporation is purchased instead of purchasing only selected corporate assets.  The first hidden trap occurs when stock is purchased as it carries with it any and all problems of the corporation including problems that are disclosed and those that are not.  Del Mar was audited by the sales tax people (CDTFA) for the years 2012-2015. It did not provide complete corporate source documents showing taxable sales such as cash register tapes, guest checks, sales journals, ledgers, and financial statements. The CDFTA had to resort to an indirect method of determining taxable sales based upon credit card sales. The CDTFA determined there was over $686,500 in unreported taxable sales generating a $55,000 assessment plus interest.

On December 17, 2014, the ownership of Del Mar was sold for $126,000.  Only the common stock was purchased, no assets.  A stock sale carries with it all corporate woes.  The buyers did not obtain a Tax Clearance Certificate.  That was the second trap for the unwary.

The escrow instructions stated, “Buyer is taking over the daily operation of the business and is assuming any and all debts owed by the corporation.” That was the third trap for the unwary.

The CDTFA gave the $55,000 bill to the new owners.  They argued that they should not be responsible for the tax liabilities arising before their purchase date of December 17, 2014.  In other words, they should be liable only for post-purchase date unreported sales.

The OTA’s Ruling

California imposes a sales tax on retail sales of tangible personal property measured by a retailer’s gross receipts.  A restaurant is considered a retailer.   R&TC § 6501 states a “seller” includes any person engaged in the business of selling tangible personal property.  A “person” includes a corporation, R&TC § 6005.  The new buyers argued that due to a change of ownership on December 17, 2014, they can only be held liable for unreported taxable sales for periods after the purchase date.  The change of ownership in December 2014 should be treated as a purchase and sale of the business.

The OTA held that Del Mar is a person under the law and its liability for unpaid sales tax is its own responsibility.  You cannot relieve corporate liability by changing stock ownership.  A change in shareholders of a corporation is immaterial for sales tax purposes.  Only the stock was sold, the corporate entity was not disturbed.  The entity owes the taxes regardless of who owns the entity.  The same seller’s permit was held both before and after the sale.

Although the OTA judge made no mention of the buyer’s failure to obtain a Tax Clearance Certificate, that failure was also another hidden trap for the unwary.

The OTA also held that if Del Mar had sold its assets to a different corporation or other entity, and the new corporation operated the business using the old seller’s permit, then both entities could be potentially liable for the deficiency.  Here, only the stock was sold not the business.  Even if the assets were purchased there is another hidden trap.  Things depend upon what assets are purchased.  If the CDTFA finds that the assets of a going business are purchased, that could also trigger successor liability.  There are traps for the unwary all over the place!

The buyers argued that the burden of the entire assessment will require them to sell the business, stripping them of their only source of income to raise their family.  The OTA judge coldly responded that cannot be his concern. Even if the business is sold, or dissolved because of the tax debt, the sellers or previous owners may now be personally liable for unpaid corporate taxes.  That is the final hidden trap for the unwary.

Conclusion

This article discussed the many hidden traps for the unwary when corporate stock is purchased instead of selected corporate assets.  While Del Mar was a case involving assessed sales tax these same traps may apply to the purchase of a business that owes the EDD unpaid employment and withholding taxes.

***

Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments.  Mr. Schriebman is in private practice.  He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.

Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Web Site Article 589

ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – THE FRANCHISE TAX BOARD SETTLEMENT PROGRAM – PART 1

By Robert S. Schriebman 2021

Introduction

The Franchise Tax Board (FTB), like the EDD, has a formal settlement program for administrative dispute resolution. The settlement procedures are set forth in R&TC § 19442. This is a very long code section and takes into account several different matters including a settlement resolution program. When compared to the EDD’s settlement program, the FTB’s version is more structured and attempts to adhere to a 9-month timeframe that will be discussed later in this article.

The FTB’s settlement program is designed to handle administrative civil tax matters that are in dispute, such as audit resolutions, hearings before the Office of Tax Appeals (OTA), and refund claim settlements. The FTB’s settlement program is not designed to handle matters of litigation in any state or federal court. The settlement program is neither designed to offer any concessions based on a taxpayer’s ability to pay, nor does it resolve offers in compromise.

In this Part 1, I will discuss the FTB settlement program in general. In Part 2, I will discuss what the FTB takes into consideration and the final approval process.

The FTB Settlement Program

Timeframe

The FTB settlement program is more structured than its EDD counterpart. For example, it is not uncommon for an EDD settlement matter to take over one year for resolution. The FTB, on the other hand, adheres to a strict 9-month process. That is to say, settlements are approved by the Settlement Bureau Director and Chief Counsel within 9 months from the settlement is submitted. A tentative settlement becomes final upon approval by the Board itself, or for small settlements by the FTB’s Executive Officer. After a settlement is submitted it takes about 7 months before initial approval by the Director of the Settlement Bureau and an additional month for approval by the Attorney General.

How an FTB Matter Gets to Settlement

Before the settlement process can be discussed, let’s talk about the basic FTB audit assessment process and audit appeals. When the FTB completes its examination, it issues a Notice of Proposed Assessment (NPA). At that point in time, a taxpayer under audit may challenge the assessment by filing a written Protest. After the Protest is filed, the FTB will hold an administrative hearing to consider the taxpayer’s position. If a resolution cannot be reached, the FTB will issue a Notice of Action (NA). This NA affirms or modifies the original assessment. If the taxpayer disagrees with the NA, the taxpayer has a right to appeal for a judge hearing with the OTA. A settlement request may be filed after the NA is issued or during the pendency of an OTA
hearing. Generally speaking, a settlement proposal cannot be submitted before these timeframes.

Form and Content of Settlement Proposal

If you wish to settle an administrative civil tax matter in dispute, such as an audit resolution, or claim for refund, the process begins by filing a written settlement proposal with the FTB. There is no specific form or format for a proposal, but the internal FTB rules require the following information:

1. Taxpayer’s name and current address (if no representative, also include the taxpayer’s telephone number and email address);
2. Representative’s name, current address, fax number, telephone number and email address;
3. Taxpayer’s social security number or taxpayer identification number;
4. Taxable year(s) involved;
5. Tax amount in dispute;
6. Present status of dispute (i.e., protest, appeal, or claim for refund);
7. Representative’s power of attorney;
8. Good faith settlement offer, including the grounds in support of the offer;
9. Identification and discussion of all issues in contention, including legal and factual grounds for positions taken by the taxpayer. Due to the expedited timeframes for the settlement program, a complete and full analysis must be included with the request; and
10. A listing of all NPAs and claim(s) for refund for the taxable years involved that are not part of the settlement request. Provide the present status of each NPA and claim for refund and the amount(s) involved.

Where to Send the Settlement Proposal
The written settlement proposal can be sent three ways:

1. Email: [email protected]
2. Mail: Director, Settlement Bureau, Mail Stop A270
Franchise Tax Board
P.O. Box 3070
Rancho Cordova, CA 95741-3070
(make sure you send by certified mail and get your receipt round-stamped.)
3. FAX: (916) 845-4747

Conclusion

In Part 2, I will discuss what happens after the FTB receives the settlement proposal and the procedures involved if the proposal is accepted or a settlement is negotiated.

***

Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.

Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Web Site Article 537

ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – THE FRANCHISE TAX BOARD SETTLEMENT PROGRAM – PART 2

By Robert S. Schriebman 2021

Introduction

The Franchise Tax Board (FTB), like the EDD, has a formal settlement program for administrative dispute resolution. The settlement procedures are set forth in R&TC § 19442. This is a very long code section and takes into account several different matters including a settlement resolution program. When compared to the EDD’s settlement program, the FTB’s version is more structured and attempts to adhere to a 9-month timeframe that will be discussed later in this article.

The FTB’s settlement program is designed to handle administrative civil tax matters that are in dispute, such as audit resolutions, hearings before the Office of Tax Appeals (OTA), and refund claim settlements.  The FTB’s settlement program is not designed to handle matters of litigation in any state or federal court.  The settlement program is neither designed to offer any concessions based on a taxpayer’s ability to pay, nor does it resolve offers in compromise.

In Part 1, I discussed the timeframe for the FTB’s administrative settlement process, the form and content of the settlement proposal, and where to send the proposal.

In this Part 2, I will discuss what happens after the FTB receives the settlement proposal.  I will discuss removing a case from the OTA hearing calendar, the 45-day document rule, what the FTB takes into consideration in the settlement process, the FTB’s “Nondisclosure Agreement,” the acceptance and approval process, and the creation of a public record of the settlement.

Removing the Case from the OTA Hearing Calendar

The FTB usually will not consider a settlement unless and until a petition has been filed with the OTA.  When the settlement proposal is initially submitted to the FTB, it notifies the OTA and requests that the pending hearing be taken off the hearing calendar for up to 9 months.  This means you do not have to prepare for a judge hearing.

The 45-Day Document Rule

When a settlement proposal is initially filed, all relevant documentation should accompany the proposal.  Recognizing that not all proposals are complete when filed. The Settlement Bureau will give the taxpayer 45 additional days to submit all relevant documentation.  If this deadline is missed, the proposal may be rejected and the filling process will have to start anew.

The Hazards of Litigation

Settlements come about because both sides are concerned about costs and the hazards of litigation.  Upon receipt of the proposal, the Bureau gathers up the files and assigns the matter to a reviewer whose job it is to consider the hazards of litigation to the FTB and the costs involved in taking the case before the OTA and the Courts.  After this analysis, the reviewer will contact the taxpayer or the taxpayer’s representative to resolve the matter by way of settlement.

The Non-Disclosure Agreement

In order to protect both parties from any other administrative or judicial proceedings, both the FTB and the taxpayer are required to sign a Non-Disclosure Agreement.

The Acceptance/Approval Process – The Full Pay Rule

If a settlement is reached and agreed to, the taxpayer is required to pay the full settlement amount prior to the process moving forward for final approval. In this respect, FTB settlements differ from EDD settlements.  When you settle a case with the EDD, you are required to pay only after the settlement has been approved by the Attorney General and the CUIAB.

Settlements must be approved by the FTB’s Executive Officer or the FTB’s Chief Counsel.   Within 30 days after approval, the Attorney General is required to review the recommendation and give its stamp of approval.

Some settlements required formal approval by the entire FTB.  If submitted to the entire Board, the settlement must be approved within 45 days of the submission of the recommendation.  If not formally approved by the Board within 45 days, the settlement is deemed automatically approved by operation of law.

There is a provision for approval of a “small case matter” in the amount of $11,500 or less.  This approval only requires the FTB’s Executive Officer or Chief Counsel.

The Public Record Statement

Any settlement that reduces the initial assessment by more than $500 requires a public record statement.  The statement is placed on file with the FTB’s Executive Officer.

The public record statement contains the following formation:

  1. The name or names of the taxpayers who are parties to the settlement;
  2. The total amount in dispute;
  3. The amount agreed to pursuant to the settlement;
  4. A summary of the reasons why the settlement is in the best interests of the State of California; and
  5. For any settlement approved by the FTB, itself, the Attorney General’s conclusion as to whether the recommendation of the settlement was reasonable from an overall perspective.

Conclusion

There is a long-standing historical maxim in the practice of law:  A good settlement is better than a good lawsuit.  This is especially true when it comes to contesting income tax disputes before the FTB.  An unresolved audit matter or assessment must be brought before the OTA and litigated before a tribunal of administrative law judges.  The OTA is not taxpayer friendly.  More cases are decided against the taxpayer than are decided in the taxpayer’s favor.  The hazards of litigation before the OTA are significant.  Therefore, a good settlement maybe the best way to go.

***

Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments.  Mr. Schriebman is in private practice.  He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.

Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Web Site Article 538

ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – DOES THE FTB HAVE A FIRST-TIME PENALTY ABATEMENT PROGRAM?

By Robert S. Schriebman

2021

Introduction

Is there such a thing as a first-time penalty abatement “get-out-of-jail-free” program? You will be happy to learn that the IRS has had a long-standing first-time penalty abatement program for late filing and late payment penalties. “First-time” does not mean a once in a lifetime opportunity. In reality, the IRS has a three-year look back rule when it comes to abating these delinquency penalties. You can have more than one bite at this apple. The rules for first-time abatement are found in Chapter 20 of the Internal Revenue Manual.

Does the California FTB also have a first-time abatement program? The answer was given in the recent OTA decision in D. Garibaldi (2020-OTA-372). This article will discuss the Garibaldi case and the FTB’s position on first-time penalty abatements.

The Garibaldi Case

In 2018, Garibaldi attempted to make an online electronic estimated tax payment of $80,000 toward his 2018 FTB personal income tax liability. The facts were not clear but, it may have been his first attempt at an electronic payment. Something went wrong. His bank information was defective. He received confirmation that his payment had been requested, but not that the payment was made.

Thinking he made the payment in good faith Garibaldi filed his 2018 FTB return reporting the estimated tax payment and a total amount due which he remitted with his return. In June 2019, the FTB notified him that he still owed $80,000. The FTB also assessed a late payment penalty and an increase in his self-reported underpayment estimated tax penalty, plus interest. He paid the deficiency and filed a claim for refund requesting abatement of the penalties and interest based on reasonable cause and a history of good tax compliance.

The OTA decided that all late penalties can only be abated due to reasonable cause. Reasonable cause is based upon ordinary business care and prudence. Failing to enter correct bank information into the electronic system and failing to check his bank account balance for confirmation of the $80,000 payment do not demonstrate due diligence and do not show reasonable cause.

Garibaldi argued before the OTA that he had a history of good tax compliance and, like the IRS, he should be given first-time abatement relief. However, the FTB has no such program, and California law allows abatement only on a showing that failure to pay was due to reasonable cause. Sorry Mr. Garibaldi, no penalty relief!

Conclusion

The California Legislature has considered the institution of first-time penalty relief that would go along with the IRS version. This is only fair. California has adopted a great majority of Internal Revenue Code laws. But in this case, the Legislature, in its peculiar wisdom, decided not to do so.

Their research disclosed that based on FTB penalty data, for the failure to file a tax return and failure to timely pay the amount due penalties, California receives $93 million in revenue each year. You draw your own conclusions. (See Assem. Bill No. 1777 (2013-2014 Reg. Sess.)

***

Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.

Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Web Site Article 545

ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – DID YOU RECEIVE A BOGUS 1099G FOR BENEFITS YOU NEVER RECEIVED? – HERE’S WHAT TO DO

By Robert S. Schriebman 2021

Introduction

These are not the best of times for many people. Unemployment throughout California is rampant. While unemployment insurance benefits are a blessing to those receiving them, there are crooks who are also receiving bogus benefits and maybe using your identity to do so. IRS Form 1099G is issued to those receiving legitimate benefits. Unemployment Insurance benefits are not taxable for California state income tax purposes.

Here is the problem. Some people are receiving 1099Gs when they have not received any benefits at all or received an amount less than what is shown on the Form. Crooks have stolen their identity and have filed false benefit claims. If you received a 1099G but did not file a claim for benefits and you believe that some crook out there has stolen your identity, i.e., your name, address, and Social Security number, there is something you can do about it.

Notify the EDD

The EDD has provided a contact through its website known as “Ask EDD.” Contact them to report the fraud. You can also call an EDD helpline at 1-866-401-2849. The EDD will issue you a corrected 1099G that you can attach to your income tax return to report the actual benefits that you did or did not receive.

***

Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.

Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Web Site Article 548

ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – DOING BUSINESS IN CALIFORNIA – WHAT DOES “COMMERCIALLY DOMICILED” MEAN?

By Robert S. Schriebman 2021

Introduction

What does “doing business” in California mean for purposes of assessing FTB minimum franchise taxes? If you are doing business in California as a corporation or LLC, you are required to pay an annual minimum franchise tax of $800 (R&TC § 23101). If you fail to pay this tax in a timely fashion, you will be assessed not only the tax but penalties, fees, and interest. Why? Because an annual minimum franchise tax must be paid when a business is “commercially domiciled” in California.

On March 9, 2021, the Office of Tax Appeals (OTA) issued a decision requiring an Arizona-based LLC, that only owned only vacant land, and had no income, to pay back franchise taxes including penalties and a fee that could not be abated under the law. This article will discuss the case of DPMG Juniper LLC (Mar. 9, 2021), and what constitutes being “commercially domiciled” in California for purposes of being taxed.

The Case of DPMG Juniper LLC (DPMG)

The DPMG case is a questionable example of how the OTA stretches the law and requires the taxpayer to prove a negative. Here’s the story.

DPMG is an Arizona LLC. It was created in Arizona and its only asset is a parcel of undeveloped land located in Chandler, AZ. The LLC generates no income. It is basically inactive. Its officers and shareholders, Robert and Gilbert, reside in California. The company has no other officers or employees. DPMG filed only a federal income tax return in 2017 showing the California address of its two owners. It did not file a California return. It has no California address.

The FTB sent DPMG a demand for a 2017 return and a demand for a minimum franchise tax of $800. When this was not paid in a timely fashion, the FTB imposed a $200 demand penalty and an $85 filing enforcement fee together with interest. DPMG paid the assessment and filed a claim for refund.

The central issue in the case was whether or not DPMG is “doing business” in California. If so, it must pay a minimum franchise tax. Todd v. McColgan (1949) 89 CA 2nd 509 (R&TC 23101). Doing business means actively engaging in any transaction for the purpose of financial or pecuniary gain or profit (R&TC § 23101(a)).

An enterprise is also doing business, within the meaning of the statute, if it is “commercially domiciled” in California. What does this mean? Normally, the word domicile means, a physical location where one tends to remain indefinitely. We know from the facts that DPMG never set foot in California. Its only asset is physically located in Arizona. It made no income in California. So, how can it be commercially domiciled here?

The OTA asked Robert and Gilbert to prove a negative – that they didn’t do business in California. They promptly responded that the business situs is in Arizona. Robert and Gilbert reside in California, but how does this fact impact DPMG?

The OTA responded by stretching the facts so they could “bootstrap” an assessment and create it out of whole cloth. The OTA said that commercially domiciled means the location where the corporate management functions – the place where real control exists. (Appeal of Norton Simon, Inc. (72-SBE-008) 1972 WL 2642). The OTA found that the FTB was justified in demanding a tax return and franchise taxes because Robert and Gilbert controlled the LLC and they resided in California. Gilbert and Robert argued, without success, that they perform no managerial functions at all due to the fact that there is nothing for them to manage. They own an inactive LLC that owns unproductive land and generates absolutely no income. The OTA on the other hand, ruled that Gilbert and Robert had the power and the potential to perform managerial functions; and that was enough to establish a commercial domicile in California.

Abatement of Penalties

The FTB assessed a $200 demand penalty and an $85 filing enforcement fee. Gilbert and Robert requested that these assessments be abated due to reasonable cause. They asked the OTA to issue a refund. Nothing doing, said the OTA. There was no reasonable cause shown for removal of the demand penalty and the filing enforcement fee could not be abated under the law. R&TC § 19254(a).

Conclusion

After reading this case, it became clear to me that “commercially domicile” is a fiction that allows the FTB to stretch out its hand and grab money that it is questionably entitled to.

The late Robert K. Castetter, Dean of California Western School of Law, often said, “There is not enough justice to go around.” The OTA proves the Dean’s wisdom. This is a forced conclusion similar to trying to put a square peg in a round hole. The more I read these OTA decisions, the more I am convinced that this is not a forum I would recommend to a client.

***

Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.
Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
Web Site Article 570

ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – TAX PROFESSIONALS -BE AWARE OF PANDEMIC-RELATED EMAIL SCHEMES

By Robert S. Schriebman
2021

Introduction

Pandemic-related schemes are on the rise and aimed at tax professionals. This is the warning issued by the IRS and its Security Summit partners. On August 10, 2021 the IRS issued IR-2021-166, one of a series of press releases as the result of the annual Security Summit conferences. In recent months international criminals have used ransomware attacks throughout the world. In this country criminals are going after tax professionals especially tax return preparers. Unsuspecting professionals are opening up cleverly designed links and attachments to hack into computer systems and obtain client files and data for ransom and vital data theft. The Security Summit reminds professionals that securing their network to protect client data is their responsibility as tax preparers and advisors.

We cannot control what crooks do worldwide, but we can control what goes on in California and in our own offices.

This article will discuss the warnings issued in IR-2021-166 and the advice given by the Security Summit.

What These Schemes Have in Common
The Security Summit wants tax professionals to be aware of the common traits of these schemes

  • They are carefully structured as coming from a familiar or trusted source such as the IRS, credit card company, bank software provider or another tax professional.
  • They tell an urgent story to trick the professional into opening a link or attachment.
  • Emails are exchanged between the crooks and the professional to induce the victims into a false sense of security.

The Trap is Sprung

Once the professional clicks on the link or attachment, malware is downloaded into the professional’s computer system giving the crooks access to all kinds of confidential information. The malware can identify drafts of tax returns and can complete those returns and e-file them changing the bank account information to their own accounts in order to steal refunds and make false unemployment compensation claims.

What to Do

The Security Summit advises tax professionals to use a two-factor or the multi-factor authentication option offered by storage providers and tax preparation providers. Use and maintain anti-virus software and drive encryption and regularly back up files.

Conclusion

The IRS has issued several publications designed to help professionals minimize their risk and exposure.

  1. IRS Publication 4557 Safeguarding Taxpayer Data
  2. Small Business Information Security: The Fundamentals by the National Institute of Standards and Technology.
  3. The IRS Identity Theft Central pages for tax pros, individuals and businesses have important details as well.
  4. Publication 5293, Data Security Resource Guide for Tax Professionals.

***

Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice.  He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.

Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Web Site Article 581

ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – THE OFFICE OF TAX APPEALS (OTA) RULES THAT FAULTY TAX SOFTWARE IS NOT PROFESSIONAL TAX ADVICE – THE PENALTIES STICK

By Robert S. Schriebman
2021

Introduction

The Office of Tax Appeals (OTA) ruled that faulty tax software is not the same as professional tax advice – the OTA sticks it to the taxpayer one more time! On April 14, 2021 the OTA issued its decision in the Mauritzson case. In the Matter of Appeal of: R. Mauritzson And C. Mauritzson OTA Case No. 20015672.

This article will discuss the Mauritzson case and the OTA’s decision not to abate FTB late filing and late payment penalties for failure to timely file a California income tax return. The OTA ruled that faulty tax preparation software did not constitute erroneous professional tax advice. This is the first case of its kind to be brought before the OTA.

The Mauritzson Case

 The Mauritzsons owned and operated an Idaho LLC known as “RM”. The Mauritzsons were also residents of Idaho. There are no issues concerning California residency. In 2017, RM sold real property located in California but did not file a California return. The Mauritzsons filed an Idaho return but did not file a California nonresident income tax return. The FTB notified them that a return was required. After waiting over one year they finally filed a California nonresident return. The FTB imposed a late-filing penalty of over $1600 plus interest. The penalty was paid and a claim for refund filed. The FTB refused to abate the penalty so the Mauritzsons filed an appeal with the OTA.

The Mauritzsons argued that they relied on tax preparation software and the software did not instruct them to file a 2017 California income tax return. In fact, the software informed them that no California return was required. They argued that reliance on the software was reasonable cause for abating the late penalties, the same as relying on the advice of an account or attorney who advised them it was unnecessary to file a return-even when such advice turned out to have been mistaken. Their authority was the U.S. Supreme Court’s Boyle decision. United Sates V. Boyle (19856) 469 U.S. 241, 250.

 The Mauritzsons explained that after imputing the correct information, the tax preparation software informed them that they did not need to file a California nonresident tax return. Instead, the software instructed them to only file an Idaho state return.

The OTA’s Decision

 The OTA had to refer to the U.S. Tax Court because there were no California cases on point. The Tax Court had an opportunity to decide this issue in the Bunney case.  Bunney V. Commissioner (2000) 114 T.C. 259. The Tax Court observed that tax preparation software is only as good as the information one inputs into it. A taxpayer must provide evidence that demonstrates that the software had a programming flaw or an instructional error. Tax preparation software does not, by itself, constitute tax advice that can be relied upon to establish reasonable cause for the abatement of penalties.

Taking a page from the Tax Court, the OTA ruled that the Mauritzsons were not able to prove that the no-filing instruction was truly erroneous and did not result in their own error when inputting their information into the tax preparation software.

Conclusion

The Mauritzsons may have lost their case because of GIGO-garbage in-garbage out. What really troubled me in reading this case was the OTA’s statement that they did not provide any evidence or information that the tax preparation software had any programming flaws. How where they supposed to do that? The erroneous instruction speaks for itself. This seems to be a harsh and unreasonable demand by the OTA, but, then again, the OTA seems to reach far in denying a taxpayer the benefit of the doubt.

 ***

 Robert Schriebman has a successful practice in the Rolling Hills

Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments.  Mr. Schriebman is in private practice.  He is not affiliated in any way with the EDD and he is not employed by the EDD or any other agency of the State of California.

Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Web Site Article 583