Frequently Asked Questions
Q: When are estimated tax payments due?
A: Estimated tax payments are due quarterly for the IRS on April 15, June 15, September 15, and January 15.
Q: What is an FBAR and when is the due date to file?
A: An FBAR form is required to be filed with FinCEN to report foreign financial accounts when the aggregate value exceeds $10,000 in a calendar year. The FBAR is due on April 15th. An automatic extension is available extending the due date to October 15.
Q: What is the penalty if an FBAR is not filed on time?
A: The penalty for willfully failing to file an FBAR can be as high as the greater of $100,000 or 50 percent of the total balance of the foreign account per violation. Non-willful violations are subject to a $10,000 penalty per violation. 31 U.S.C. § 5321(a)(5).
Q: What is the statute of limitations on collection of federal income taxes?
A: The statute of limitations on a federal tax debt is 10 years from the date of last assessment. There are a number of events that can toll the statute of limitations.
Q: Do I have to pay a ten percent penalty if I withdraw funds from my retirement account before age 59 1/2 when I use that money to pay my taxes?
A: Yes. The 10 percent penalty on early withdrawal of retirement funds applies even if those funds are used to pay taxes. The ten percent penalty does not apply if the IRS levies a retirement account.
Q: How do I obtain an Employer Identification Number (“EIN”) for my business?
A: An EIN is obtained by completing and filing form SS-4 with the Internal Revenue Service. The process can be completed online at the IRS website and by phone.
Q: How do I make a tax payment if I do not have a bank account?
A: Taxpayers with no bank account are commonly referred to as “unbanked.” Unbanked taxpayers can make tax payments to the Internal Revenue Service by making an appointment at a field office to deliver a cash payment. This procedure is common in the developing cannabis industry.
Q: Should I file an income tax return even if I can’t afford to pay the tax?
A: Yes! Always file a proper and accurate income tax return on time, as it will avoid the penalties for failing to do so.
Q: What do I do if I am audited by the IRS?
A: The IRS will ask for a variety of items to verify your income tax return is correct. The first thing you will need to do is notify both your CPA and tax attorney. Then, with their guidance, begin assembling the documents relied upon in preparation of your income tax return. Documents may include bank statements, cancelled checks, receipts, deposit slips, etc.
Q: What is the difference between and offer in compromise (OIC) for doubt as to liability, and an OIC for doubt as to collectability?
A: An OIC based on doubt as to collectability is to settle a tax debt for an amount less than the tax liability when a taxpayer is financially unable to pay the tax liability in full before the statute of limitations expires. An OIC for doubt as to liability is to settle a tax liability for less than the amount owed because the validity of the liability itself is questionable.
Q: What happens if I have an accepted offer in compromise and do not meet the terms?
A: The IRS can default the accepted offer, reinstate the entire liability, and resume its effort to collect.
Q: What happens if I can no longer afford my IRS installment agreement?
A: If there is a change in circumstance, you can advise the IRS and ask to have the payment reduced. In many cases where the installment payments are no longer affordable, the agreement defaults due to a missed payment requiring negotiation of a new agreement. It is important to establish a new agreement in the appropriate amount to avoid enforced collection by lien or levy.
Q: How much time does the IRS have to audit an income tax return?
A: In most cases, the IRS has three years to audit an income tax return from the due date of the return, or the date it was filed, whichever is later. The IRS has six years if there is a substantial understatement of income, and there is no time limit to audit a return when there is fraud.
Q: What is an eggshell audit?
A: An eggshell audit is the civil audit of a tax return that contains a fraudulent position (intentional understatement of income, overstatement of deductions, or claiming a credit for which the taxpayer is not eligible), but the agent auditing the return is not yet aware of the fraudulent position within the return.
Q: What is a will?
A: A will is a legal document that sets forth wishes for the distribution of property upon one’s death.
Q: What is a revocable living trust?
A: A revocable living trust is a legal entity used primarily for estate planning purposes which holds title to property and sets forth the wishes for the distribution of that property upon one’s death. A revocable living trust is used to avoid costly probate proceedings. A trustee manages and controls trust property, and is usually the same person that formed the trust.
Q: What is an advanced healthcare directive?
A: An advanced healthcare directive identifies in advance the medical decisions to be made for a person if that person becomes unable to make medical decisions for themselves.
Q: What is a durable power of attorney?
A: A durable power of attorney grants authority for someone to act on behalf of a person, even after that person becomes incapacitated.
Q: What happens if myself or a loved one passes without an estate plan in place?
A: Your estate will be distributed on State intestacy laws that applies when someone passes without a will or trust in place.
Q: What is probate?
A: Probate is a court proceeding to determine if a will exists and if it is valid, identify beneficiaries of an estate, wind-down an estate, and distribute property of the estate to the rightful heirs. Probate is required in the State of California when certain assets of an estate exceed a specified dollar threshold. Proper estate planning can help minimize the chance a probate will be necessary.
Q: Can I amend my will?
A: Yes. A codicil is a legal document used to amend a will so rewriting the entire will is not necessary.
Q: What type of business structure is right for my business?
A: There are several ways to structure a business which include sole proprietorship, partnership, corporation, limited liability company, limited partnership, and limited liability partnership. The structure of any business should coincide with the specific needs of the business owner or owners. There are many variables to consider when forming a business and Mopsick Carrere, LLP, can assist in choosing the right structure for any business.
Q: What is an Employer Identification Number?
A: An Employer Identification Number (EIN) is a tax identification number assigned to businesses by the Internal Revenue Service. An EIN is required for corporations, LLCs, LLPs, partnerships, and for sole proprietors under certain circumstances. For example, a sole proprietor will need an EIN when they have employees, or if they pay certain types of taxes like an excise tax.
Q: What is California’s minimum franchise tax?
A: The California minimum franchise tax is the minimum tax amount that must be paid for the privilege of operating a corporation, LLC, LP or LLP. The current amount of the minimum tax is $800.00. The tax is imposed regardless of whether the entity is active, inactive or operating at a loss.
Q: Will my personal assets be exposed to liability resulting from business activities?
A: The degree to which your personal assets are exposed to liability for business activities depends on the type of structure you choose for your business, whether personal guarantees are signed on debts of the business, and how well the business has conformed to applicable formalities, such as keeping personal and business assets separate, maintaining proper records, etc.
Q: What is an S Corporation?
A: An S Corporation is a corporation that has filed an election with the IRS to be taxed as a pass through entity. This allows shareholders to avoid double taxation by reporting income and losses on their personal income tax return. A corporation must meet specific requirements in order to elect S Corporation status. Mopsick Carrere, LLP, can help determine if it is appropriate to elect to be taxed as an S Corporation.
Q: How does a corporation issue stock?
A: A corporation must carefully consider both state and federal securities regulations before issuing stock. Generally, an offer or sale of stock must be qualified or registered with the Securities Exchange Commission (SEC) and the state unless an exemption applies. Common federal exemptions include the intrastate exemption and the exemptions set forth in Regulation D. Common California exemptions are those set forth in California Corporations Code sections 25102(f) and 25102(h). Even when an exemption applies, a filing is often required to notify the SEC or state that an offer or sale is being made in reliance on an exemption. Securities regulations are very complex and usually require an attorney to help ensure compliance.
Q: What is a shareholders agreement?
A: A shareholders agreement is an agreement or contract between shareholders of a corporation. While a shareholders agreement is not required to form and operate a corporation, in some situations a well drafted shareholders agreement can help shareholders maintain positive working relationships. The shareholders agreement covers such things as shareholder voting, management, capital contributions, what happens when a shareholders wants out or dies, dispute resolution, etc.
Q: What is an operating agreement?
A: An operating agreement is an agreement between members of a limited liability company (LLC). Even a single member LLC needs an operating agreement. It helps maintain the limitation on personal liability provided by the LLC. The operating agreement outlines such things as how the LLC will be managed, how profits and losses will be distributed, what happens when a member wants to leave the LLC or dies, etc.