Los Angeles Tax Attorney
Many businesses and taxpayers in and around Los Angeles have benefitted significantly from the strong local, state, and regional economy yet do not use the services of a local L.A. tax attorney when they face potential tax audits or inquiries. Los Angeles is an international city with a booming entertainment industry that not only reaches across the United States, but also the world. Furthermore, L.A. is fortunate enough to be located on the west coast close to major ports bringing goods, products, and commodities from Asia and China. Thus, some companies also operating overseas may have additional international tax obligations on the funds they repatriate. Furthermore, due to the area’s significant ties to the worldwide economy, individuals in living in Los Angeles are more likely to have foreign disclosure and international tax obligations.
These economic advantages have led to the development of some of the more wealthy areas in the United States. In particular, Beverly Park, The Hill Section of Manhattan Beach, Beverly Hills, Woodland Hills and Hidden Hills are neighborhoods where great financial success is the rule. However, the prosperity in Los Angeles may mean that taxpayers in the area face a higher than average risk of a tax audit. A recent study by the National Taxpayer Advocate showed clusters of tax enforcement activity in wealthy parts of major metropolitan areas. Los Angeles was one of the cities identified in the report. This is likely a case of the IRS focusing its efforts on where the money is in order to maximize its return on tax enforcement efforts. Nevertheless, taxpayers should recognize this risk and engage in appropriate measures to maintain or achieve compliance with the U.S. Tax Code.
Most citizens, legal permanent residents, and others in the Los Angeles area, all have an obligation to file their income taxes on a yearly basis. Typically, the deadline to file one’s personal taxes is April 15. Whether an individual is obligated to file a return is based on his or her filing status and level of income. For example, in 2014 a single filer aged 65 years or older must file if he or she has $11,700 or greater in income. However a sole filer who has yet to reach the age of 65 would be required to file after earning only $10,150 in income. In general, heads of household, married taxpayers who file jointly, and certain widowers who have qualifying dependents can earn more before they are required to file. However, many of these individuals would likely want to file regardless because the only way to obtain one’s income tax return is to file. Learn more about the importance of hiring a Los Angeles income tax attorney.
Our Los Angeles Tax Law offices are conveniently located at:
California State Income Taxes
Aside from the obligation to file federal income tax, Los Angeles taxpayers are also obligated to pay the state income tax. The California Franchise Tax Board (FTB) is the state agency responsible of administering and enforcing the state income tax. The tax brackets for the state income tax are indexed to this figure. For the 2015 tax year, the maximum rate for an individual is 12.3%. Certain individuals may fall within criteria requiring them to pay the Alternative Minimum Tax which is set at 7%. Furthermore, individuals with taxable income in excess of $1 million, are subject to a Mental Services Tax of 1% for all income above this threshold. Residents of L.A. should, generally, file their individual California Resident Income Tax Return via form 540 or 540 2EZ. Taxpayers who fail to satisfy any element of their federal or state tax obligation are likely to receive a notice from the relevant agency concerning the deficiency.
International Tax Obligations
Taxpayers who hold or control account balances in excess of the filing threshold must also prepare and file annual offshore tax disclosures. There are two sources for this obligation: FBAR (Report of Foreign Bank & Financial Accounts) and FATCA (Foreign Account & Tax Compliance Act). To satisfy one’s offshore tax obligation one may be required to disclose an account under FBAR, FATCA, or both. Failure to comply with offshore disclosure obligations can result in significant fines and penalties including a $10,000 penalty for even an inadvertent violation of FBAR. Penalties for conduct perceived as intentional or voluntary can carry significantly harsher penalties that routinely exceed the original foreign account balance.
Offshore Voluntary Disclosure Program (OVDP) and Streamlined Disclosure can offer non-compliant taxpayers a means to correct past inaccurate, incomplete or missing FATCA or FBAR filings. However, it is important to consult with an experienced tax lawyer before filing to participate in either program. On one hand, the Streamlined Program can provide for significantly reduced penalties in comparison to standard OVDP. However, only OVDP provides some level of insulation from criminal penalties should willfulness be at issue. Taxpayers who mistakenly enter into Streamlined when they intentionally or voluntarily avoided this duty may face criminal prosecution bolstered by the disclosures they just made. By contrast, a taxpayer who is not willful but enters into standard OVDP will pay significantly more in offshore penalties than they would have through the streamlined program.
Failure to File Taxes
Taxpayers in Los Angeles and beyond have an obligation to file and pay taxes. This obligation includes filing and paying taxes by the deadline. If a federal extension is filed via IRS Form 4868 Application for Automatic Extension of Time to File U.S. Individual Income Tax Return the extension applies only to the amount of time to file – the payment of the taxes or an amount satisfying the safe harbor provision is still due by the original date. A similar extension can be obtained for state tax obligations via the filing of FTB Form 3519 along with an estimated tax payment. Individuals who will receive a refund or no balance due receive an automatic six-month extension. Individuals who fail to file or pay state or federal tax or make arrangements consistent with the preceding, may face penalties. Individuals whose actions raise red flags in IRS or FTB systems are likely to face an audit or tax examination.
The IRS may send an array of notices or letters to inform the taxpayer of their selection for an examination or the agency’s need for additional information. If the FTB makes changes to a taxpayer’s return, it may send the taxpayer a Return Information or other documentation detailing the changes and tax balance. Furthermore, taxpayers who fail to take action regarding the requests, may have the IRS or FTB file a tax return on their behalf. This return is rarely filed with the taxpayer’s best interest in mind and often results in significant additional liabilities and penalties. California tax payers who proceed to collections at the state or federal level may face a lien on their property, a levy to seize their property or assets, or a garnishment on their wages.
Business Tax Audit by the Employment Development Division (EDD)
Furthermore, Los Angeles businesses in California and throughout the United States have an obligation to account for, hold, and turn over payroll tax receipts to the U.S. government. These taxes are sometimes referred to trust fund taxes because although it is the business owner who accounts for and collects the tax, the money is actually being held in trust for the U.S. government. Therefore, penalties for payroll tax fraud and evasion are severe and can, upon conviction, include the imposition of personal liability on the part of the business owner or responsible party. Problems of this type are financially disastrous for both the business and for the individual.
An audit by the California Employment Development Division is often the start of a trying and difficult for a business owner. Chiefly, the EDD is concerned with employment tax payments and handles payroll tax audits. Typically, this process requires an in-person interview that will also include a tour of the business and its facilities. The agent from the EDD often uses this tour to gather information about the company and its operations. In many cases, they may even conduct an informal interview of the person giving the tour of the premises. Practices and characteristics of a business that may trigger an audit by the EDD include:
• Use of structured transactions – Transactions made only to circumvent tax obligations, cash reporting laws and other paper transactions with no economic substance can create fertile ground for an EDD audit. The evasion of certain cash reporting laws through multiple transactions and other methods of structuring may also result in referral to the IRS or other relevant state agencies.
• Inappropriate use of corporate or business funds – Business owners who commingle personal and company money set themselves up for possible criminal charges. Likewise CEOs and stakeholders who use company money for family members, to pay personal expenses, or who mischaracterize expense are also preferred targets for the EDD.
• Excessive cash transactions – In some instances the use of cash in the business may be completely innocent and merely related to the industry and type of transactions. However, the EDD realizes that transactions of this type prevent a greater potential for abuse. Thus, businesses dealing primarily or exclusively in cash face a higher audit risk. Further, due to Los Angeles’ proximity to operations by Mexican cartels and instances of money laundering on their behalf in L.A.’s Fashion District, EDD and other regulators watch cash businesses closely.
Business owners who fail to keep sufficient records of the company’s finances and transactions often exacerbate the potential consequences of an EDD audit. Absent business records, the owner and other responsible parties may face difficulty in proving the source of cash. Whether your business in Los Angeles is a retail location, a bar or liquor store, a medical practice, or another type of company keeping accurate and sufficient records is of the utmost importance. Furthermore, the practices described above can also result in a federal employment tax audit by the IRS.
Business Sales Tax Audits By California Board of Equalization
Business owners must also be sure that their company’s books are in good order and that sales and payroll tax obligations have been accounted for and addressed. Sales Tax in California is administered by the California State Board of Equalization (BOE or SBE) . In recent years, the BOE has cracked down on sales tax evasion and abuses including the use of zappers; devices that can alter sales records as part of a scheme to avoid sales tax. Penalties for state sales tax evasion are severe.
Typically, a California sales tax audit conducted by a state auditor will begin with an examination of the business records. Regulation 1698 Records sets forth the types of records a business owner must keep and provide in the case of a sales tax audit. Generally the records that must be kept merely begin with the normal books of accounts that a business owner keeps in the regular course of business. The standard that guides these records is objective in nature and not based on the individual business. Rather it was premised on the type of records an “average prudent businessperson engaged in the activity in question.” These and other required records that should be kept for a minimum of four years may include:
• Register receipts whether electronic or paper
• Cash receipts
• Schedules used in the preparation of tax returns
Audits by the BOE are best handled by having a tax attorney engage with the auditor early in the process. During these initial discussions ground rules for the audit should be discussed and decided upon. Furthermore, discussions should also include contingencies for potential problems including what will happen if the auditor determines the documents are insufficient or he or she perceives problems or inconsistencies in the records.
Typically, if problems are found, the auditor may initiate an in-depth review. The thorough review will typically involve an audit either on a sample basis or on an actual basis. An actual basis audit will examine every transaction and assess sales tax on this basis. A sample basis audit will take a certain time period or statistical sample and assess sales tax on this basis. As one can imagine, a non-representative sample may result in the imposition of an overstated sales tax liability. Since, in this scenario, the tax assessed is based on inflated sales that were never actually made the business may face a tax burden that cannot be satisfied or results in a capture of a substantial amount of legitimate profits. In any case, this is one of the potential nightmare scenarios that can be avoided by working with a tax attorney who takes an active role in the audit from its start. Business owners who wait until a problem is discovered to attempt to negotiate or reason with the auditor do so from a position of weakness rather than strength. These individuals often face worst-case scenarios. For certain businesses that depend on licenses subject to suspension for unpaid sales tax, like liquor stores, a BOE audit that goes poorly can place the entire operation and organization in jeopardy.
Los Angeles Federal, State and International Tax Experience
The tax code can be challenging to navigate and interpret, and the consequences of a mistake could include prison time, expensive fines, penalties for your business, and lost financial opportunities. But whatever tax issue you may be facing, whether you are concerned about an IRS audit or need assistance planning an international estate, the Tax Law Offices of David W. Klasing can help.
Our Los Angeles Tax Law offices are located at:
With his unique dual qualification as both a Los Angeles tax law firm attorney and CPA, David W. Klasing offers businesses and individuals a wide variety of legal services to protect their financial interests while ensuring compliance with the law. Equipped with more than 20 years of experience, our dedicated team of accountants and litigators is committed to providing our clients with aggressive legal representation, and even more importantly, priceless peace of mind.
Our Los Angeles tax law firm attorneys have extensive experience consulting with businesses and individuals across a wide range of general tax planning and litigation matters, including:
- Awards and Settlements
- Bookkeeping Accounting
- California Sales Tax
- Employment Tax Representation
- Innocent Spouse Relief
- Tax Transactions
- Business Law
- Criminal Tax Defense
- Domestic and International Estate Planning
- International Tax Law
- IRS Appeals
- Non-Filer Assistance
- Tax Planning and Preparation
- Tax Services for Clergy
- Voluntary Offshore Disclosures
The experienced and dedicated Los Angeles tax attorney professionals of the Tax Law Offices of David W. Klasing can provide strategic guidance to mitigate the consequences you face. Contact our Los Angeles tax law offices to schedule your personal consultation.