Awards & Recognition
The internet lets a sole proprietor in Fresno sell niche parts to customers in Florida before sunrise—but the same borderless reach now exposes even the smallest seller to an alphabet of taxing authorities: the IRS, CDTFA, FTB, EDD, and more than forty other state revenue departments. Since the Supreme Court’s landmark South Dakota v. Wayfair decision in 2018, state “nexus” is no longer bricks, mortar, or payroll; a few mouse clicks and $100,000 in shipments can first create a sales tax filing obligation followed by income tax obligations generated by the sales tax returns and trigger a high-risk tax audit half a continent away. Marketplace-facilitator reporting, 1099-K data, Amazon FBA inventory lists, and soon-to-be-mandatory crypto Forms 1099-DA give state auditors a laser-guided map to uncollected sales tax, unfiled income-tax returns, and unreported gross receipts. Registering for sales tax in one jurisdiction inevitably places your EIN on radar screens elsewhere, and the first nexus questionnaire is often followed by a high-risk IRS eggshell audit aimed at under-reported income or credits.
At the tax law offices of David W. Klasing, our boutique firm of dual-licensed Tax Attorneys & CPAs protects online businesses from that domino effect. We deliver privileged nexus studies, file anonymous voluntary-disclosure agreements (VDAs) to cap historical exposure, deploy automated solutions such as TaxJar for real-time sales-tax compliance, defend federal and multi-state tax audits, and, where necessary, contain matters before they reach the clandestine and life-altering IRS Criminal Investigation (CI) or equivalent state criminal tax function. Call 800-681-1295 or contact us online HERE to schedule a reduced-rate initial consultation.
Audits of Online Businesses: Where Examiners Start—and Why
Auditors’ open e-commerce cases because enormous data streams make target selection easy. Payment-processor 1099-K mismatches, marketplace-facilitator spreadsheets, and FBA inventory reports all feed IRS and various state & California analytics. Once a file is open, agents apply Internal Revenue Manual procedures: Required Filing Checks to “pick up” prior, subsequent, and related returns; cross-year bank-deposit and lifestyle analysis; and, if records are missing or internally inconsistent, formal indirect methods such as bank-deposits/cash-expenditures, net-worth increases, and source-and-application of funds. When “firm indications of fraud” surface—concealed accounts, double books, credit-card diversion—federal agents must consult a Fraud Technical Advisor and consider a Form 2797 referral to IRS Criminal Investigation, an office that obtained 1,571 convictions and a 90 percent conviction rate in FY 2024. Our first task is always the same: insert privilege, stabilize the books, and keep the engagement strictly civil.
Multi-State Sales-Tax Exposure After Wayfair—Automate or Fall Behind
Every sales-tax state now enforces an economic-nexus threshold—$100,000 in gross receipts or 200 transactions in many jurisdictions; $500,000 in California and New York; revenue-only thresholds for SaaS or services in others. A single cyber-Monday promotion can flip a seller from “remote” to fully taxable overnight. Manual tracking invites disaster, so we insist on automated tools such as TaxJar to monitor thresholds, charge the correct rate at checkout, and file zero-touch returns. Automation is more than convenience: it provides the “contemporaneous record” that supports a reasonable-cause argument when our dual-licensed Tax Attorneys and CPAs negotiate penalty abatement or a various state, federal or California Voluntary Disclosure Agreement.
Be forewarned: completing a sales-tax registration exposes you to income-, franchise-, gross-receipts-, and payroll-tax scrutiny in PRIOR year activity. States crossmatch their registrant rosters against income-tax databases and payment-processor feeds, then issue nexus questionnaires. California state asserts corporate-income-tax filing whenever California sales exceed $500,000 (R&TC §23101) even if you have no property or payroll in the state. Ohio, Washington, and Oregon impose gross-receipts taxes at even lower thresholds. At the tax law offices of David W. Klasing, our practice aligns the dominoes up front: if we register you for sales tax, we simultaneously model and resolve the income-tax side—leveraging P.L. 86-272 where web activity still qualifies and restructuring entities to minimize double taxation.
Advertising & Affiliate-Referral Revenue—Easy Targets for Adjustments
Google Ads, Facebook placements, YouTube monetization, Amazon Associates, Share-A-Sale, and countless niche affiliate programs funnel commission income through separate merchant platforms. Because payouts often come on Forms 1099-NEC or via ACH proration—and may not hit the same Stripe or PayPal account as product sales—entrepreneurs frequently omit them from gross receipts. IRS lead sheets specifically instruct auditors to ask whether the taxpayer “operates an e-business” and to request copies of advertising or referral contracts, payout dashboards, and year-end summaries. Our dual-licensed Online Business Attorneys and CPAs reconcile every AdSense deposit and affiliate statement to bank records, document charge-backs and refunds, and reconcile the net numbers before the first IDR drops where possible.
Offshore & Cross-Border Concerns—Why E-Commerce Draws CI Attention
Congress and the IRS identify offshore tax evasion as a primary driver of the “tax gap.” Enforcement programs such as FATCA, the Swiss Bank Program, automatic exchange agreements, and the Offshore Credit Card Program target digital cash flow. The IRS’s own Examination Techniques guide admits it views online businesses as inherently riskier because they are borderless, paperless, and often involve barter transactions. Credit cards—especially multiple processors, cross-border merchant IDs, and nested intermediary accounts—are classified by CI as the primary vehicle for under-reporting income on the internet. Our team diagrams transactions, traces funds through processors, and—where offshore exposure exists—files protective foreign-asset reports or voluntary disclosures to avoid willful-FBAR penalties and criminal tax referral.
Business Losses, Hobby-Loss Rules, and Large Write-Offs
Online entrepreneurs sometimes treat start-up losses as an automatic deduction strategy—until the IRS invokes the hobby-loss rule (IRC §183) and its nine-factor test. Persistent Schedule C losses in industries considered hobbies (blogging, collectibles, gaming streams) invite disallowance unless a profit motive is demonstrated through contemporaneous records, marketing plans, and changes toward profitability. The IRS also benchmarks expense categories against industry averages; extensive depreciation schedules, rent, hosting, or utilities are red flags that can reveal unreported internet activity.
Employment-Tax & Worker-Classification Landmines
Internet sellers often rely on contractors—such as web designers, fulfillment temp crews, and influencers—to keep payroll costs low. Examiners test classification under common-law control standards; if they recharacterize contractors as employees, the business becomes liable for back withholding and the Trust Fund Recovery Penalty (TFRP) under IRC §6672. Our dual-licensed Tax Attorneys and CPAs pair federal §530 safe-harbor arguments with California’s Borello and AB-5 carve-outs, defend against “pyramiding” assessments, and, when the numbers justify it, negotiate In-Business Trust Fund Express Installment Agreements to protect cash flow while we dispute liability.
Digital Assets—Form 1099-DA and Crypto Mismatches
Every Form 1040 filer now answers the digital-asset question. Beginning with transactions on or after January 1, 2025, brokers must issue Form 1099-DA; basis-reporting phases in over 2026–27. Auditors compare blockchain proceeds, staking rewards, and mining income to return positions. Our dual-licensed cryptocurrency Tax Attorneys and CPAs reconcile wallets, exchange CSVs, DeFi activity, and Form 1099-K/DA flows—and document chain-of-title so CP2000 crypto mismatches never mature into a fraud development file.
Contact the Tax Law Offices of David W. Klasing if Your Online Business Faces Multi-State, California or IRS Exposure
At the tax law offices of David W. Klasing, our dual-licensed Tax Attorneys & CPAs deliver a turnkey defense for online businesses and e-commerce entrepreneurs. We begin with a privilege-protected Nexus & Exposure Study that traces every revenue stream—shopping-cart sales, marketplace payouts, affiliate commissions, click-through traffic, FBA inventory, and even offshore receipts—so you know precisely where sales- and income-tax liabilities lurk. Where back-tax risk exists, we approach the states anonymously through Voluntary Disclosure Agreements, capping the look-back to three or four years, erasing penalties, and settling outstanding tax before the state finds you. We recommend the TaxJar automation platform so multi-state sales-tax collection and filing run reliably in the background while you focus on growing the business, draft protective income-tax returns or restructure entities to neutralize factor-presence nexus and preserve P.L. 86-272 protection, and stand between you and every taxing agency—IRS, CDTFA, FTB, EDD, or any other state revenue department—from the first IDR to the final closing agreement, all under attorney–client and Kovel privilege.
If credit-card diversion, crypto flows, or foreign accounts surface, we pivot instantly to CI containment and offshore remediation, keeping the matter strictly civil. One sales-tax registration, one 1099-K mismatch, or one overseas wire can trigger cascading high-risk tax audits and potential criminal tax exposure; our integrated service—nexus analysis, VDA negotiation, tax audit defense, income-tax planning, and CI risk management—stops that chain reaction before it starts. Call 800-681-1295 or contact the tax law offices of David W. Klasing online HERE to schedule a reduced-rate initial consultation and secure a privileged roadmap that keeps your online business compliant, profitable, and stress-free.
