San Francisco Tax Attorney + CPA for Passive Income Individuals
At the Tax Law Office of David W. Klasing, we are San Francisco tax attorneys, and CPAs with more than 20 years of experience representing individuals and business entities in civil and criminal tax matters pertaining to passive income. Our award-winning tax firm has a particularly robust record in the area of tax audit and appeals representation, providing effective strategic counsel whether we are representing the taxpayer against the Internal Revenue Service (IRS), against state tax agencies such as the Franchise Tax Board (FTB), before a panel of administrative law judges, or against the Department of Justice. If you require an aggressive and seasoned tax audit attorney in San Francisco – or if you simply have a tax compliance question concerning your passive activities – the Tax Law Office of David W. Klasing is here to provide responsive 24-hour tax help throughout the Bay Area and beyond.
What is Passive Income and Activity?
Most of us think of income as the money we earn by actively working, whether as a full-time or part-time employee, a temp or gig worker, an independent contractor, or a business owner. However, the income derived from a taxpayer’s salary, tips, hourly wages, and/or commissions is merely one type of income known as “ordinary” or “active” income. There is also another variety known as “passive” income, which is regulated by different tax laws than ordinary income.
In contrast to ordinary income, passive income is derived through passive activity, which the IRS breaks into two broad categories: rental activities (such as home rentals), and all other passive activities. If you have indirectly participated in a business, you may have engaged in passive activity – for instance, if you are a limited partner in a partnership, or if you are a member of an LLC who does not control or materially participate (750 hours or greater a year of qualifying activities) in the business’ decisions and operations.
California Tax Audit Attorneys for Individuals + Businesses with Passive Income
You or your business may be selected for an income tax audit by the IRS or FTB – even, in the latter case, if you are not a California resident. Some potential issues that might trigger an FTB or IRS tax audit include failing to timely and accurately report and pay taxes on passive income; fraudulently claiming passive activity credits (in other words, attempting to claim the credit despite knowing the taxpayer is ineligible); and failing to file federal or California tax returns. Taxpayers are more likely to be selected for audits if they report extremely high or low amounts of income; if they operate their own businesses; if they have been audited in the past; or if the IRS or FTB receives information about the taxpayer from an anonymous referral or tax whistleblower.
Our tax audit lawyers represent corporations, partnerships, LLCs, sole proprietors, contractors and subcontractors, expats, retirees, trusts and estates, and other taxpayers in all types of audit-related proceedings. We can assist you with an eggshell or reverse eggshell audit, correspondence or field audit, civil or criminal tax audit, or an audit involving your foreign accounts, in addition to numerous other examinations.
IRS Audit Appeals Representation in San Francisco
After an audit ends, the IRS or FTB will send the taxpayer a notice explaining its decision. In many instances, either no change is recommended, or the taxpayer agrees with the change that has been recommended by the auditor. However, there are also cases where the taxpayer does not agree with the auditor’s findings – which could be based on IRS or FTB errors as to the law or facts at issue in your audit. For example, the auditor may have incorrectly found that additional tax should be assessed, meaning the taxpayer has been wrongly found to owe additional payment; that the taxpayer should be charged interest; and/or that one or more penalties should be imposed.
The IRS appeals process, though complex, gives the taxpayer an invaluable opportunity to prove that the auditor erred and avoid liability for unfair tax bills. In some situations, it may be possible to resolve the dispute simply by going through mediation, which is less formal than appeals, while other situations call for aggressive tax litigation. Tax litigation, though sometimes the only effective strategy, is generally a final resort after other remedies have been exhausted. An IRS appeals lawyer can help you explore your legal options efficiently.
San Francisco Tax Lawyer + Accountant for Passive Income
If you have one or more streams of passive income, you should discuss your tax reporting obligations with a trusted attorney or accountant. Tax representation is especially critical if you are under audit or believe you could be at risk for a criminal tax investigation. Contact us online right away to arrange a reduced-rate tax consultation or call the Tax Law Office of David W. Klasing in San Francisco at (415) 287-6568 for immediate assistance. We are available 24 hours a day, seven days a week, to assist you with your audit, appeal, or related matter.
Passive Income Tax FAQs
Federal regulations around passive income are codified at IRC 469. To learn about how passive income is treated under IRC 469 and California law, browse the tax FAQs below, then contact our office for a reduced-rate consultation.
- Do passive losses receive special treatment under IRC 1041 in a divorce?
- How are passive activity expenses and losses characterized?
- Is there a special allowance for rental real estate activities?
- What are passive loss limitation rules?
- What are some tax basics around real estate and divorce?
- When can real estate professionals deduct real estate rental losses?