Tax Law And Business Law FAQ
Here are questions we commonly receive regarding tax law and business law.
I’m in trouble with the Internal Revenue Service (IRS) and don’t know where to turn. What now?
Jason P. Gerstein is a licensed attorney with an MBA in Tax and Finance and an LLM (Master’s Degree) from Georgetown Law School in the area of Taxation. He is an expert in the field and can help you with any tax issue you may encounter.
What is an Offer In Compromise?
An offer in compromise allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can’t pay your full tax liability, or doing so creates a financial hardship. At Diamant Gerstein, LLC, we can counsel you on various options you may have with your tax issues.
What is an Installment Agreement?
If you’re financially unable to pay your tax debt all at one time, you can make monthly payments through an installment agreement. This can help to reduce or eliminate your payment of penalties and interest.
Can’t I just negotiate with the IRS on my own?
It is highly recommended you hire an attorney to help with your tax problem. Taxpayers often commit to higher payments than they can afford when they try and negotiate with the IRS on their own. If you owe over $10,000, Diamant Gerstein, LLC does not recommend you attempt to set this or any other arrangements on your own.
How can you help me? What Can be Done?
A monthly payment plan can be set up to pay back the taxpayer’s tax liability. The IRS has guidelines as to what amount they will accept and the time frame they will accept it in. A financial statement is required from the taxpayer before our firm can negotiate an installment agreement. If the debt is under $50,000, Diamant Gerstein, LLC can help offer a stream-lined agreement.
An Offer in Compromise is another option that can lower the total tax liability owed by the taxpayer due to financial constraints. This is a very popular solution advertised by most firms, but not available if the taxpayer has the ability to pay the debt.
Jason P. Gerstein has the knowledge and experience needed to know what the IRS will accept in each situation. Our skilled team can negotiate on your behalf and help obtain an agreement that is reasonable for you.
I’m being audited. Now what?
An audit requires an examination of a business or individual returns and transactions. This requires expertise in tax issues and transactions, as well as accounting procedures. A complete review of all documents that will be associated with the audit must be performed. Sometimes, an audit seems like it may only cover one or two years, so taxpayers and businesses think they can handle it on their own. After the audit of the one year is done, other years may become flagged. You need a strategy before you ever enter into an audit. Having a tax professional to help you organize your documents is key and can mean a world of difference in the outcome of your audit.
Many taxpayers try to handle an audit on their own. They think they are saving a few dollars and will be okay on their own. What often happens is the audit costs them more, than if they were to hire representation and have they negotiate better terms. Auditors are highly-skilled, and they are well-trained individuals who know how to get more information than you are legally required to provide.
How can Diamant Gerstein, LLC help me with my tax problem?
Jason P. Gerstein will review all your audit documents and help explain them to you. He will advise you as to what items you need to provide and which ones you do not. He will help you gather, compile and organize your documents. This will make the auditor know you are prepared, make their job easier, the process more streamlined. After the audit is complete, the Firm will contact you with the findings and explain them to you. If you are not satisfied with the outcome of the audit, Jason P. Gerstein will discuss your appeal options.
What is included in Audit Representation?
- We will relieve you of the obligation of talking to the auditor. We will do all of the talking for you.
- We will speak directly to the agency on your behalf.
- We will be available to answer any questions you may have about the process.
- We will communicate with the auditor and answer their questions about your tax returns.
- We will help prepare legitimate arguments on your behalf and present them to auditor.
- We will help provide any follow up documentation requested by the auditor.
- We will perform detailed analysis and research on your specific case.
- We will negotiate on your behalf.
- We will help settle any claims with the IRS.
- We can help with appeals process if necessary.
Can the IRS sanction or penalize me?
The IRS assesses penalties and interest on tax liabilities so over time taxes due years ago can increase from hundreds to thousands of dollars. The IRS will sometimes lower or eliminate these fees if we can offer a reasonable cause for non-payment or non-filing (death, illness, fire, lack of funds, etc.) We recommend paying the tax prior to making the request.
Filing late If you do not file your return by the due date, you may have to pay a failure-to-file penalty. The penalty is usually 5 percent for each month or part of a month that a return is late, but not more than 25 percent.
Failure to Pay Penalty The failure-to-pay penalty is calculated based on the amount of tax you owe. The penalty is .5 – 1.5 percent for each month the tax is not paid in full.
Failure to File Penalty The failure-to-file penalty is calculated based on the time from the deadline of your tax return to the date the return is actually filed. The penalty is 5 percent for each month or part of the month that the tax return is late, up to a total maximum penalty of 25 percent
Accuracy Related Penalties The two most common accuracy related penalties are the “substantial understatement” penalty and the “negligence or disregard of the rules or regulations” penalty. These penalties are calculated as a flat 20 percent of the net understatement of tax.
How can your firm help me with my landlord-tenant dispute or business matter?
At Diamant Gerstein, LLC, Jason P. Gerstein can provide legal assistance in your commercial leasing and landlord-tenant matters. He has substantial experience in matters regarding commercial leasing disputes, representing both landlords and tenants in transactions and litigation. He is also an expert in contracts, including both commercial and retail contracts.
Transactions and litigation services:
- Lease negotiation
- Breach of lease
- Commercial Leasing
- Holding-over actions
- Non-payment/ejectment actions
- Landlord’s Liens
- Rent abatement
- Constructive eviction
- CAM disputes
- Code violations
I am getting divorced and just learned my spouse may have been engaged in illegal activities involving the IRS. What is innocent spouse relief? How do I know if I qualify for Innocent Spouse Relief?
Many married taxpayers choose to file jointly because of the many benefits this filing status offers them. However, filing jointly also makes both spouses jointly and severally liable for any tax, interest and penalties. This is true even after the spouses divorce. Unfortunately, problems can arise when a spouse fails to report income or takes improper deductions or credits on the tax return (or fails to file a return at all), as the other spouse remains liable. Fortunately, there are a few ways that persons who were unaware of their spouse’s illicit tax activities can relieve themselves of liability. Innocent spouse relief basically relieves a spouse of joint and several liability from the tax you owe if your spouse (or former spouse) did not report income, improperly reported income or improperly claimed credits or deductions. Under the tax laws, all of the following must be true to qualify for this type of relief:
- You filed a joint return with a tax deficiency that is solely attributable to your spouse’s erroneous item (e.g. credits, deductions, etc.)
- At the time you signed the return, you did not know or have reason to know that there was an understatement of tax
- Considering the facts and circumstances, it would be unfair to hold you liable for the tax deficiency
- Separation of liability relief allocates the owed tax between you and your spouse or former spouse, lessening the amount for which you are liable. It is available if at least one of the following is true:
- You are widowed
- You are divorced or legally separated from the spouse with whom you filed the joint return
- You have not been a member of the same household as the spouse with whom you filed the joint return at any time during the year before you sought relief
- Even if you don’t qualify for Innocent Spouse Relief, equitable relief may be available. To qualify for this type of relief, you must prove that, under all the facts and circumstances, it would be unfair to hold you liable for the underpayment or understatement of tax. In addition to this, you must meet other requirements listed in Publication 971 to qualify for equitable relief.
- Successfully obtaining relief from joint and several liability for taxes can be an uphill battle. To maximize your chances of success, it is vital to have the advice of an experienced tax attorney throughout the process.
I have a business and employ people, and I do not understand the laws in Maryland concerning tax liability. Can you explain them to me? What if I have a nanny at home? An au pair at home? What kind of taxes do I need to pay? Do I need a lawyer?
First, you are an employer if you have a worker in your home, working full or part-time. If during any calendar quarter of the current or preceding calendar year there is a total payroll of $1,000 or more to an individual(s) performing domestic service, the domestic employer is liable.
If a Domestic Employer is liable to pay quarterly unemployment insurance taxes, the employer must submit a Combined Registration Application no later than twenty days after the first day of services performed. Employers may use the following link to file the Combined Registration Application via the Internet at New Employer Account Registration or contact the Employer Status Unit at the telephone number listed below. The Division of Unemployment Insurance will establish an unemployment insurance account for the employer and assign a ten digit account number. A liable employer is required to file a Contribution and Employment Report each quarter.
Jason Gerstein has nearly 20 years of experience with businesses and domestic employers’ tax issues, and he can help you with any tax issue you may have. Give him a call at 301-841-8443.
What is the definition of “employer”?
An employer is an individual or employing unit, which employs one or more individuals for some portion of a day. Besides the multitude of regular employers, such as manufacturers, retailers, etc., it also includes special types of employment that are sometimes overlooked by employers. These special types and liability requirements are:
Agricultural Employer – if during any calendar quarter of the current or preceding year the employer paid cash remuneration of $20,000 or more to individuals performing agricultural labor; or employed at any time ten or more individuals for a portion of a day in any twenty weeks in the current or preceding calendar year, then the agricultural employer is liable.
Domestic Employer – if during any calendar quarter of the current or preceding calendar year there is a total payroll of $1,000 or more to an individual(s) performing domestic service, then the domestic employer is liable.
Farm Crew Leader – if a crew leader holds a valid certificate of registration under the Farm Labor Contractor Registration Act of 1963; or the crew leader provides mechanized equipment which substantially all the individuals operate or maintain, provided the individuals are not employees of another employer, then the farm crew leader is liable.
Employment is defined as any service performed for remuneration (payment) whether full-time or part-time. This also includes salaries paid to corporate officers who are employees of the corporation (including close and subchapter S corporations).
One of the most common employment exclusions is an “independent contractor.” The criteria for independent contractor status are: The individual who performs the work is free from control and direction over its performance both in fact and under the contract; and The individual customarily is engaged in an independent business or occupation of the same nature as that involved in the work; and The work is: (a) outside of the usual course of business of for whom the work is performed, or (b) performed out-side of any place of business of the person for whom the work is performed.
When independent contractor status is in question, employers must document that all three of the criteria above are satisfied. An independent contractor should have the appropriate licenses, file business tax returns, and may have his/her own federal identification number and UI account number. The Code of Maryland Regulations (COMAR) provides additional guidance for making the proper determination regarding workers. The landmark Maryland Court of Appeals decision, DLLR v. Fox (PDF document, 94KB, download Adobe Acrobat for free) also provides insight into the analysis of the classification of independent contractor.
How does my business register as a “new” employer?
You can open an unemployment insurance employer account by filing a Combined Registration Form. Employers should submit a Combined Registration Form no later than 20 days after the first day of business. This single registration form covers obligations to seven State agencies. The employer only completes sections that apply to his/her business. Instead of filing a paper Combined Registration Application, you may file the application on the Internet at Maryland Comptroller’s Office. To request a registration form, call (410) 225-1313 in the Baltimore area or toll free on 1-800-492-5524.
What are taxable wage inclusions and exclusions?
Taxable wages include total remuneration paid up to the taxable wage base limit of $8,500 before any deductions are made.
The following wages are taxable:
- Meal and lodging provided by an employer to an employee, unless the meals and lodging are provided on the employer’s premises for the employer’s convenience.
- Tips which are reported pursuant to Section 6053 of the Internal Revenue Code.
- Payments to workers for: (a) dismissal; (b) vacations; (c) sick leave (for first six months only); and (d) advances to employees for travel or other expenses for which no accounting or reporting to employers is required.
- Payments by the employer of the employee’s share of Social Security (except for payments made by domestic and agricultural employers).
Notation: The Federal Unemployment Taxable (FUTA) wage base remains unchanged at $7,000.
What is a “reimbursable” employer (not-for-profit and government entities)?
Not-for-profit organizations classified under Section 501(c)(3) and exempt from income tax under Section 501(a) of the Internal Revenue Code, and state and local government entities and subdivisions may elect to finance their UI costs by reimbursing the state dollar for dollar for benefits charged against their accounts, in lieu of paying quarterly UI taxes. Not-for-profit organizations are required to post a bond of a specific dollar amount. Questions concerning not-for-profit status and/or requirements may be directed to the Unemployment Insurance Employers Line on (410) 949-0033 for callers in the Baltimore area or toll free on 1-800-492-5524.
The election of the reimbursement method for newly formed not-for-profit organizations must be made in writing to the agency within 30 days of coverage under the law. Once electing the reimbursement method, Maryland law only permits an employer to change his/her option after two years on written notice to the Assistant Secretary not less than 30 days prior to January 1 of the year the new options becomes effective (if approved).
Billing for benefits chargeable to the not-for-profit organization or government entities is made via the “Statement of Reimbursable Benefits Paid,” (DLLR/DUI 64-A). This quarterly statement lists all claimants collecting benefits during the previous quarter. Organizations receiving this form have 15 days from the “Date of Invoice” to file a written protest. Interest is charged for any late payments.
What if my business has employees working in several states?
Services performed within Maryland, or both within and without this state are to be reported to Maryland if:
- The service is localized in Maryland; or,
- When there is employment in more than one state and some service is performed in the state where the base of operations is located, then the earnings are to be reported to that state where the individual’s base of operations is located. If no services are performed in the state with the base of operations and some services are performed in the state where direction or control is received, then the earnings are to be reported to the state where the individual’s direction or control is received. If there are no services performed in the state where the base of operations is located or where direction or control is received, then the individual’s state of residence is to be used.
The objective is for all services performed by an individual for a single employer to be covered under one state law, wherever the services are performed. Employers may elect to cover an employee through a Reciprocal Coverage Agreement between states. For additional information, contact the Unemployment Insurance Employers Line on (410) 949-0033 in the Baltimore area or toll free on 1-800-492-5524.
How can my business pay its unemployment insurance taxes?
Maryland employers are required to pay their quarterly unemployment insurance taxes by the quarterly due date, four (4) times each year. For employers filing on the WebTax online application:
- Pay by E-Check (free) at the time of the filing, through the application
- Pay by Credit Card (the greater of $1.00 or 2.5% of the tax due) at the time of the filing, through the application
- Pay by paper check and mail to P.O. Box 17291 Baltimore, MD 21297-0365
- Pay by E-Check (free) after the time of the filing, directly at the provider’s site at Official Payments’ E-Check web site.
- Pay by Credit Card (the greater of $1.00 or 2.5% of the tax due) after the time of the filing, directly at the provider’s site at Official Payments’ Credit Card Web site.
- Pay by ACH Credit after obtaining approval from DLLR by using the Electronic Funds Transfer Guide.
How does an employer compute excess wages for the quarterly contribution report?
An employer pays taxes on the first $8,500 of wages paid to an employee in the calendar year. An example of excess wages for one individual follows: If an employee earned exactly $8,500 in the first quarter of the calendar year, the employer would have zero excess wages in the first quarter because the entire amount of wages is taxable. If the employee earned $7,000 in the second quarter of the same calendar year, the amount of excess wages in the second quarter would be $7,000 because the employer had paid taxes on the first $8,500 in the first quarter. Apply this calculation to all employees to determine excess wages for each employee, and then add excess wages for all employees. This grand total is entered as excess wages for your filing. For additional help computing excess wages, you may use the free Excess Wage Calculator in an Excel Spreadsheet format.
What is an offer in compromise? Do I need a lawyer?
The Offer in Compromise (OIC) is a program that allows a Maryland taxpayer to settle their delinquent taxes for LESS than the total amount the IRS claims they owe.
To ensure a quality submission and with a greater possibility of an approval of your Offer in Compromise you must retain the services of a proven Maryland Tax Attorney, like Jason P. Gerstein, who has both the expertise and the relationship with the IRS to get the job done for you.
Once all the accurate information has been gathered, the lawyers at Diamant Gerstein will prepare an offer and submit the proper documentation and forms that will put you and your case for an Offer in Compromise in the most favorable light possible with the Internal Revenue Service.
Over the years, the Comptroller of Maryland has taken many steps to insure that the taxpayers pay their tax dues, mostly by implementing new collection tools. For example, since January 2000 the Comptroller has been participating in the Federal Tax Refund Offset program, a cooperative program with the Internal Revenue Service that allows the Comptroller to intercept the federal income tax refunds and apply them to satisfy delinquent state income tax liabilities. The Comptroller has started its own new program to catch tax-evaders called “Caught in the Web” initiative, an online list of delinquent individuals and businesses. On their website, the Comptroller lists not only the individuals who owe delinquent personal income but the owners of businesses who owe some of the largest tax liabilities for corporate income, employer withholding and sales and use tax for all the world to see. Also, under the Corporate Charter Project the Comptroller sends out numerous warning letters every day to delinquent corporations that are not in bankruptcy and do not have payment plans in order to collect business tax liabilities. Upon receiving such a notice, the corporations have 15 days to contact the Comptroller to resolve the issue or possibly face forfeiture of the corporate charter. Furthermore, the Comptroller is now more empowered to collect the tax dues since the requirement that the Comptroller get a court order for a direct wage garnishment and a bank attachment no longer exists.
In sum, a well-functioning Offer in Compromise program will both enhance the taxpayer’s future compliance and secure collection of revenue that may not be collected through any other means. The Comptroller needs to make more serious efforts to adopt a tax policy that serves two purposes: meeting the government’s need for revenue and valuing the taxpayer’s well-being. And one way to do this is by strengthening the Offer in Compromise program, not by implementing more traditional enforced collection tools.
Could I get a settlement that would let me pay down what I owe the IRS over time?
If you are unable to pay the Internal Revenue Service for taxes you owe, you may be able to qualify for a tax payment plan. The IRS calls such payment plans an Installment Agreement. Maryland offers similar tax payment plans. While most would prefer to obtain an offer in compromise, which reduces the total tax debt, many will not qualify because either their income is too high (by IRS standards) or the taxpayer has too many assets, which includes home equity. Thus, that taxpayer’s only option may only be to request a payment plan.
What is an offer in compromise?
By filing an Offer in Compromise, you are offering to pay less than the full amount of your tax debts to the Internal Revenue Service. The IRS, at its discretion, may accept less than full payment of your tax debts if there is doubt as to whether the IRS could ever collect the full amount of tax debt or if there is doubt as to whether you are actually liable for the tax debt. Submitting an offer in compromise is one of five ways to get out of tax debt.
What are the terms and conditions of the Offer in Compromise?
In a nutshell, you agree to:
- Pay the offer amount in the Offer in Compromise.
- File your tax returns on-time and pay your taxes on-time for the next five years.
- Let the IRS keep any tax refunds, payments, and credits applied to your tax debts prior to submitting your Offer in Compromise.
- Let the IRS keep any tax refunds that would have been payable to you during the calendar year that your Offer in Compromise is approved.
If your Offer in Compromise has been approved, you need to make sure the IRS does not revoke your Offer. At all costs, make sure that you:
- File your taxes by April 15th for the next five years.
- Pay your taxes by April 15th for the next five years. If you owe, your taxes must be paid in full by April 15th. Make estimated payments to make sure you don’t have a balance due.
If the IRS revokes your Offer in Compromise, they will reinstate the full amount of your tax liability, add on penalties and interest, and begin aggressive collection efforts.
Can I pay “pennies on the dollar” to settle my tax debts?
The marketing slogan, “pay pennies on the dollar,” is misleading.
In a successful offer in compromise, the taxpayer pays less than the full amount taxes, penalties and interest. However, the taxpayer must prove that the amount he or she is paying is equal or more than the reasonable collection potential as determined by the IRS. The reasonable collection potential, broadly speaking, is the IRS’ best guess about how much money you could come up with in the next 24 months to pay off your tax debts.
How long does it take to get an Offer in Compromise?
It will take one to two years to complete the Offer in Compromise process.
Is there a fee for submitting an Offer in Compromise?
The IRS charges a user fee of $186 to process an Offer in Compromise. You must pay this fee whether you prepare the Offer yourself or hire a tax professional. If you are living below the poverty line, the IRS will waive the fee if you request a fee waiver.
What if I don’t qualify for an Offer in Compromise?
If you don’t qualify for an Offer in Compromise, you should consider setting up an installment agreement to pay off your tax debts. You will want to seek the help of a tax professional to evaluate alternatives for handling your tax debts.
If you do not qualify for an Offer in Compromise, here is how to qualify for an Installment Agreement:
To qualify for an installment agreement, the taxpayer will need to be current with their ongoing tax obligations. In addition, the taxpayer will need to ensure that all required tax returns have been filed. In many situations the taxpayer may be required to file financial reports showing their income, expenses and available assets. Depending upon the amount due and time required to pay the amount, the IRS may require documentation of your income and expenses.
If the taxpayer owes a substantial amount to the IRS, then the payment may be in excess of what the taxpayer may be comfortable paying. Unfortunately, the IRS may require you to make certain lifestyle changes in order to make the payments. Further, the IRS may require you to include the income of your significant other, even if you are not married, as an available resource. When IRS required payments are excessive, the taxpayer may be eligible for an offer in compromise or may want to consider filing for bankruptcy to reduce the tax debt. Further, a tax attorney, like Jason P. Gerstein, may assist you by appealing unreasonable payment requirements or rejected installment agreements.
A benefit of an installment agreement is that the IRS will no longer be able to pursue most collection actions against the taxpayer, such as a levy against wages or property. Thus, if you agree to make a $300.00 payment, the IRS will not be able to seize your wages to collect additional amounts. The IRS payments will be in equal amounts over the designated payment period. The installment agreement will not stop penalties or interest from accruing in addition to a nominal fee to establish the agreement, so a taxpayer should also consider bank financing in the alternative.
Once the taxpayer has an installment agreement in place, the taxpayer will need to continue making all required current tax payments and file all tax returns. If the taxpayer becomes further indebted to the IRS, the IRS may cancel the installment agreement for the older debts and resume collection actions. In addition, the taxpayer’s future tax refunds will be seized and applied toward the debt. Such additional payments will, however, reduce the installment agreements duration.