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IRS Survey, Compliance Check & Examination Defined – Paul Gaulkin CPA

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There are three types of ways the IRS will generally check a tax return for proper accuracy and accounting. These three include the survey method, compliance check and examination. Survey Method Returns can be surveyed by the IRS without the taxpayer ever being notified. Agents can survey a return if they believe an examination would result in no material change in tax liability. This procedure is available only if the agent has not contacted the taxpayer or the taxpayer’s representative, … Read more

United States Tax Court Basics – Paul Gaulkin CPA

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A taxpayer may petition the Tax Court for redetermination of their deficiency within 90 days of the mailing of a notice of deficiency according to Code Section 6213(a). If the 90 day deficiency notice was used by the Appeals Office, it is possible to arrange for pretrial settlement with the Regional Counsel of the IRS. This can be accomplished even after the case has been docketed in the Tax Court. Small Tax Cases Taxpayers filing a petition with the Tax … Read more

How to Calculate Tax Liability – Paul Gaulkin CPA

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Taxable income is computed using one of the two overall accounting methods, the cash method or the accrual method. It is possible to use a combination method that involves using both the cash method and the accrual method. Different Accounting Methods Under the cash method, income is reported when it is received and deductions are taken when the expense is paid. The accrual method requires income to be reported when all the events necessary to fix the right to receive … Read more

Alternative MACRS System – Paul Gaulkin CPA

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MACRS deductions are reduced for certain property by requiring that an alternative MACRS method, based on the Asset Depreciation Range System class lives, be used for: 1. Tangible property used predominately outside the United States 2. Tax exempt property 3. Tax exempt bond financed property 4. Property imported from a foreign country for which an Executive Order is in effect because the country maintains trade restrictions 5. Property for which an alternative MACRS election has been made Mixed property which … Read more

Estimated Tax Payments & Underpayment Penalties – Paul Gaulkin CPA

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Generally, if someone is an employee of a company, the withholding that is taken out of their paycheck should cover the tax liability at the end of the year. If a person is self employed, this is not the case and estimated payments much be made each quarter. This is generally called a declaration of estimated tax for which the taxpayer indicated their intent to make estimated payments. Understanding an Underpayment If the total amount of tax paid through withholding … Read more

Definition of a Corporation for Tax Purposes Form 8832 – Paul Gaulkin CPA

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If a business owner chooses to incorporate there business under state law, it is important for them to also declare their corporation with the IRS for taxing purposes. A corporation is nothing more than a legal entity owing its existence to the laws of the state in which it is incorporated. Basically, state law defines all the legal relationships that a corporation can have. The state statutes however do not provide guidance on the taxation for federal purposes; this is … Read more

Non Liable Spouse & Offer in Compromise – Paul Gaulkin CPA

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In the event an Offer in Compromise based on doubt as to collectability is submitted by a married taxpayer whose spouse is not liable for the tax debt, the assets and income attributable to the non liable spouse will not be considered in determining reasonable collection potential. This means that the IRS will generally not pursue the assets and income of the non liable spouse when negotiating an Offer in Compromise that is based on doubt as to collectability. The … Read more

Change of Accounting Period IRS Permission Form 1128 – Paul Gaulkin CPA

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When a taxpayer wants to change their accounting period, they generally need the permission of the IRS to do so. The request needs to show the IRS that there is a substantial business purpose for the change and that any tax cost that will be assumed by the IRS will be insignificant. Requesting a Change of Accounting Period If a business feels the need to request a change of accounting period, they should do so by filing Form 1128 (Application … Read more

Qualified Small Business Stock Tax Free Transfer – Paul Gaulkin CPA

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There are many ways that qualified small business stock can be acquired that is not through original issuance. These include, gifts, transfers at death, transfers from a partnership, corporate reorganizations, stock conversions, options, warrants, or as convertible debt. There are certain transfers that warrant tax free treatment from the IRS. These include transfers by gift, death, and reorganization. Transfer by Gift or Death In the event of a transfer of qualified small business stock by gift or at death, the … Read more

Offer in Compromise Framework – Paul Gaulkin CPA

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The Internal Revenue Code provides statutory authority for the IRS to compromise or settle any tax liability for less than the full amount owed. This authority is discretionary on the part of the IRS, and there are no statutory rules that require acceptance of an offer in compromise under any circumstances. The IRS has to authority to reject any offer in compromise it chooses to and usually only will compromise a debt under certain circumstances. Chance of Acceptance It should … Read more