Author Archives: Coleman Jackson

Strategies for Responding to Bid Protests in Government Contracting

By: Coleman Jackson, Attorney & CPA
October 20, 2021

Strategies for Responding to Bid Protests in Government Contracting

Suppose your company is an unsuccessful bidder for a government contract or has won an award, and an unsuccessful bidder is protesting your prize. In that case, it is essential to defend your rights vigorously. In the federal market, bid protests are an integral oversight mechanism, ensuring that procurement statutes and regulations carry out federal acquisitions policy goals. Or Suppose a company believes the federal government failed to comply with the terms of a solicitation (i.e. IFB, RFP, RFQ, etc.) or applicable laws or regulations in a procurement transaction. In such instances as these, the company (bidder) must follow strict rules or face losing the right to protest. What is a bid protest?  A bid protest is a legal challenge to the government’s actions during the procurement phase, including evaluating bids/proposals and the award of a government contract.  The how, when, and where of bid protests are controlled by various laws and regulations.

Bid protests can be brought in different forums and are subject to strict timelines that must be followed appropriately. Whether defending a protest as a successful awardee, or prosecuting a protest as a disappointed bidder, all government contractors must understand the bid protest process to defend their contract awards from protest successfully or vindicate their rights to full and open competition as a protester. First of all, let’s clear up some confusion and doubts about the bid protest process.

 

Bid Protest Overview

Bid Protest Overview

Bid protests are legal challenges brought by bidders against the way the Government has conducted a procurement transaction.

An interested party may protest to the agency, the Government Accountability Office (GAO), or the United States Court of Federal Claims (COFC).

Which venue is best to bring a bid protest will depend upon various facts. Primary considerations include the value of the procurement to your company, the cost of pursuing a protest in the particular venue, whether the protest would be timely in the venue (i.e. a protest that is untimely in the GAO may be timely in the COFC), and whether the protest will involve information that requires a protective order (i.e., competitive communication is limited to the attorneys, and not disclosed to the companies involved). In recent years, most bid protests are filed with the GAO, so in our blog, we will focus on the GAO bid protest process.

GAO has defined the basic standard of its review of a bid protest as follows:“ The evaluation of an offeror’s proposal is a matter within the agency’s discretion. A protester’s mere disagreement with the agency’s judgment in its determination of the relative merit of competing proposals does not establish that the evaluation was unreasonable. While we will not substitute our judgment for that of the agency, we will question the agency’s conclusions where they are inconsistent with the solicitation criteria and applicable procurement statutes and regulations, undocumented, or not reasonably based.”

 

How many days you have to file a protest will depend the basis for the protest to begin with

How many days you have to file a protest will depend the basis for the protest to begin with. In general, if a protest is based on an obvious problem with the solicitation documents, the protest must be filed before the date the bid or proposal must be submitted. The purpose of this rule is to prevent a contractor from sitting on their rights to challenge what they believe to be an unfair solicitation, rolling the dice to see if they win, and then, if unsuccessful, filing a protest.

The time requirements for other protests, such as a challenge to the government’s decision to award the project to another company, will depend on the protest venue. At the GAO, a protest must be filed within ten days after the basis for the protest is known or should have been known. If a debriefing is requested, and the government is required to provide the debriefing (i.e., negotiated procurement under FAR Part 15), then the protest may be filed within ten days after the debriefing.

However, there are benefits to filing the protest even earlier because of automatic stay rule. An automatic stay (i.e., the government is required to withhold award and suspend contract performance) if the protest is filed with the GAO within five days of the offered mandatory debrief date or within ten days of contract award. A stay of performance can be very consequential since it can impact your remedy or ultimate relief. Without auto stay, the contract will continue to be performed, and there may not be any contract requirement left to award to you even if your protest is successful.

 

GAO attorney assigned to the protest

Once your protest is filed with the GAO, the agency has 30 days to provide the agency report (AR). The AR will include documents responsive to your protest arguments, including documents requested explicitly in your protest. The AR will consist of a statement by the contracting officer regarding the grounds of the protest and a legal memorandum from the agency’s lawyer. In addition, the AR will show what the agency did during the procurement process, which may bolster the initial protest or provide additional grounds for protest. Sometimes the agency refuses to provide certain requested documents, and the dispute has to be settled by the GAO attorney assigned to the protest.

The agency or an intervening awardee may request that all or part of your protest be dismissed. Such requests by the agency or intervenor are often based upon arguments of timeliness, standing, ripeness, and lack of prejudice. If a request for dismissal is filed, the protestor will have to file a response opposing the bid. If a dismissal request is submitted, it is often before the 30-day deadline for filing the AR.  This AR should be reviewed carefully and with skill because it often is a source of very helpful historical information pertaining to the government officials actions in award of government contracts under open and fair competition laws.

Once the AR is provided, the protestor has ten days to file comments responding to the agency’s arguments. If the protestor fails to address any ground of protest in its words, the GAO will deem the omitted environment as abandoned by the protestor.  The protestor must be meticulous when marshaling the facts; and the bid protestor must cogently and  thoroughly apply relevant government contracting legal principles when challenging government contract awards at the GAO or any other legal forum.

In addition to comments, as I mentioned in pasting before, a protestor often discovers additional grounds of protest upon reviewing the AR. Review the AR right away; because time is of the essence These different protest grounds have to be filed within ten days of receiving the AR (i.e., within ten days of knowing the basis for the protest ground). The agency will be required to file a supplemental AR in response, and the protestor will have to file additional comments. The process for supplemental protests is truncated (e.g., the GAO may require the supplemental AR to be filed within ten days instead of the 30 days allotted for the initial AR).

The agency may take corrective action at any point in the process. Remedial action by the agency is a recognition that they failed to comply with some part of the procurement process, and they are therefore correcting that mistake. The agency has broad discretion in corrective action, and it often includes a reevaluation of proposals or amendments to the solicitation. If the agency takes corrective action, the GAO will dismiss the portion of the protest related to the corrective action.

The GAO will issue its decision within 100 days of the filing of the protest. The GAO may deny or sustain the protest, in whole or part. If the protest is supported, the GAO will direct the agency to remedy the problem. If the GAO denies a protest, the protestor may refile the protest with the Court of Federal Claims.

 

Strategies for Responding to Bid Protests in Government Contracting

Understandably, clients often want to know the likelihood that their protest will be successful. However, the possibility of success or failure is fact-specific to each protest. Moreover, many successful protests are based upon the supplemental protest, which is not available to the protestor until the AR is filed. Statistically, however, the GAO has reported that the effectiveness rate of protests in the last several years is between 42% to 45%. That means nearly half of the protests filed result in the GAO sustaining the protest or the agency taking corrective action to remedy the mistakes cited in the protest.

You should promptly speak with an attorney and counselor if you believe the government has not abided by the terms of a solicitation or applicable government contracting laws and regulations. Timely guidance and evaluation of your potential bid protest are essential to meeting the stringent requirements for protesting government contract awards.  This is merely an overview of Strategies for Responding to Bid Protests in Government Contracting; knowledge and skill in government contract law, and proper evaluation of all the facts and circumstances are extremely important when pursuing legal strategies.

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432 | Portuguese (214) 272-3100

Regulation of Paid Tax Preparers Likely Coming Soon – Law Watch

Coleman Jackson, P.C. | Law Watch Transcript
09.10.2021

Regulation of Paid Tax Preparers Likely Coming Soon

Welcome to Law Watch

My name is Reyna and I am the legal assistant here at Coleman Jackson PC a tax, litigation, and immigration law firm based in Dallas Texas.

Our topic today is “Regulation of Paid Tax Preparers Likely Coming Soon”.

This presentation is word for word of a question-and-answer session that I had with Attorney Jackson. I will only be relaying the information that Attorney Jackson and I discussed.

Reyna Munoz

Question 1:

So, Attorney, let’s get to it.  What is all this buzz that we’ve been hearing in the news about the regulation of paid tax preparers?

Attorney Coleman Jackson

About two or three weeks ago a proposed bipartisan legislation was introduced in the U.S. House of Representatives, proposing to authorize the U.S. Treasury to regulate paid tax return preparers and enforce minimum standards of competency to protect the American tax payer and protect the integrity of the federal tax system.  Earlier this year, President Biden had introduced The American Family Plan that also has regulatory protections for American tax payers which also seeks to regulate paid tax return preparers. Both of these measures have strong support by the American Institute of Certified Public Accountants and other professional organizations who have long supported measures to improve the competency and accountability of tax return preparer industry.

Reyna Munoz

Novice taxpayers go to these tax return preparers to competently advise them in complying with the tax laws and help them file their tax returns on time.  So that leads me to my second question.

Question No. 2:

How exactly does this proposed legislation expect to protect American taxpayers?

Attorney Coleman Jackson

Let us keep in mind that this is merely proposed legislation at this point.  It must go through the legislative process in both the House of Representatives and U.S. Senate and ultimately be signed into law by the President.  That may or may not happen and the terms of the bills announced in the House a few weeks ago and the legislation proposed by the President might change before it ever becomes law.

But let me just discuss some of the highlights of the proposed legislation to date:

The Proposed legislation will impose the following regulatory scheme with respect to paid tax preparers:

The IRS will have regulatory authority to regulate paid tax return preparers;

The IRS will have the authority to reinstitute the IRS’s 2011 Registered Tax Return Preparer Program.  This is the program that was challenged in Loving v IRS whereby the courts stated that the IRS did not possess the authority to impose certain mandatory requirements on paid tax return preparers.

The IRs will have the authority under the proposed legislation to sanction and revoke an incompetent or fraudulent tax preparer’s tax identification number; thereby, prohibiting the tax preparer from representing taxpayers before the IRS or filing tax returns for the public.

The proposed legislation has other provisions, but these three are the major ones. The bottom line is Congress and the President are trying to establish minimum competency requirements for tax return preparers.  The public has a right to expect competency and professionalism in those who they trust with their tax information and in those they rely on to help them comply with complicated tax laws.  Those who prepare tax returns should possess the knowledge and skill to accurately prepare tax returns and help taxpayers to take lawful tax positions.  These public policy goals seem to be the expression of the pending legislation.

Reyna Munoz

Question 3:

What if any laws protect taxpayers now from incompetent tax return preparers or those preparers that simply commit all kinds of unspeakable acts harming their clients?

Attorney Coleman Jackson

Well, there are various laws and regulatory bodies that regulate certain tax return preparers.  For example, lawyers are regulated by state licensing authorities.  Likewise, Certified Public Accounts (CPAs) are also regulated by state licensing authorities.  Enrolled agents are currently regulated by the IRS.

But currently there are unregulated tax return preparers who prepare tax returns as well.  This is the big problem because these unregulated tax return preparers are not subject to any accountability authority.  If a taxpayer has a problem with their lawyer, they can go to the State Bar and file a complaint.  If a taxpayer has a problem with their CPA, they can go to the State authorities who licenses CPAs in their State.

The problem is how do you regulate and protect the public from incompetency.  There  are long established tax laws against malfeasance and fraud committed by tax return preparers.  Congress has also over the years passed due diligence requirements of tax return preparers.  And the IRS has had the power to impose various penalties on tax return preparers who  unlawfully disclose or use taxpayer information and who advise taxpayers to take unlawful deductions and other unfounded tax positions and commits tax fraud.

Finally, most States have professional mal-practice laws and consumer protection laws that might give some taxpayers a legal remedy in tax preparer cases.  But those laws can be complex and have extremely short statutes of limitation.  What the attorney is saying is this: it is costly to sue in Texas and most other states and most taxpayers probably don’t know where to start in holding a tax return preparer accountable.  Whenever anyone sues a tax preparer in court, it’s wise to hire a lawyer.  Lawyers are expensive; lawsuits take time and the wheels of justice turns slow.

All the while, the wronged taxpayer may have to pay the IRS back taxes, penalties and interest for problems caused by an incompetent or unethical tax preparer.  The attorney believes that this is at the core of the proposed regulation of paid tax return preparers.   The trusting public needs a remedy that is quick and effective in getting unscrupulous and incompetent tax preparers out of the market place.

Reyna Munoz

Question No. 4

How likely is this legislation to become law that is designed to protect taxpayers from their own tax return preparer?

Attorney Coleman Jackson

Answer No. 4:

I don’t know.  All I can say is that several different pieces of legislation are in process.

And some powerful regulatory organizations like the American Institute of Certified Public Accountants and the National Tax Return Preparers have publicly come out in favor of some if not all of the measures that we’ve been discussing in this video.

We have to wait and see whether some of these protections will actually become law.  The legislative process can be slow, but Attorney Jackson believes that these changes are needed based on some of things that he has seen over the years in representing taxpayers, many of whom were harmed by their tax return preparers through no fault of their own.  They were innocent victims.  It’s a shame and hopefully some if not all of these regulatory measures will become law.

Reyna Munoz

Question No. 5

Our listeners just have to continue to listen to our Legal Thoughts Podcast, watch our Law Watch videos and read our blogs because our law firm communicates regularly on topics in taxation, litigation and immigration that might educate our audience in the areas of law that we practice.

Question NO. 5:

Attorney, am I right about this?  You do intend to monitor the progress of the legislation designed to protect American taxpayers from incompetent or unscrupulous tax return preparers?  I mean this is an important development because most folks are just at the mercy of their tax return preparer

Attorney Jackson

Definitely. Anyone interested in learning more about this and other topics dealing with taxation, contract litigation and immigration can follow our Legal Thoughts Podcast, Law Watch videos and blogs by going to www.cjacksonlaw.com.  All of our publications are free of charge and are designed to educate our clients and the general public on legal topics that we think might be of importance to them.

Attorney Jackson sees the right to practice law as a privilege and publication of these items are our way of giving back to the public and hopefully helping people understand the laws and their legal rights.  They do not constitute an Attorney-Client relationship between our firm and the listeners of the podcasts, viewers of our videos or readers of our blogs.  People should seek legal representation of their choosing.

We are very likely to monitor the developments on the tax preparer regulatory front and alert our listeners either by follow up podcast like this one or by Law Watch video published on our U-Tube Channel or by blogs.  Again, our viewers can access all of these for free by going to www.cjacksonlaw.com.

Reyna Munoz’ Concluding Remarks

I’d like to take the time to thank Attorney Jackson for providing us with this information about proposed legislation designed to protect American taxpayers from incompetent or unscrupulous tax return preparers.

Our listeners who want to see more videos like this one should subscribe to our channel and listen to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify or wherever they listen to their podcast.  You can follow our blogs by going to our law firm’s website at www.cjacksonlaw.com.

This is the end of Law Watch for now

Thanks for giving us the opportunity to inform you about the “Regulation of Paid Tax Preparers Likely Coming Soon”.

This has been a presentation based on a question-and-answer session with Attorney Jackson. Find our contact details in our description box. See you in our next video.

Economic Impact Payments and other Tax Benefits for those Experiencing Homelessness | Legal Thoughts

Coleman Jackson, P.C. | Transcript of Legal Thoughts Podcast
Published June 28 ,2021

Economic Impact Payments and other Tax Benefits for those Experiencing Homelessness

Legal Thoughts is an audio cast presentation by Coleman Jackson, P.C., a law firm based in Dallas, Texas serving individuals, businesses, and agencies from around the world in taxation, litigation, and immigration legal matters.

This episode of Legal Thoughts is an audio cast where the Attorney, Coleman Jackson is being interviewed Mayra Torres, Public Relations Associate of Coleman Jackson, P.C.  The topic of discussion is “Economic Impact Payments and other Tax Benefits for those Experiencing Homelessness“. You can listen to this podcast by clicking here:

If you enjoy this podcast, make sure to stay tuned for more episodes from the taxation, litigation, and immigration Law Firm of Coleman Jackson, P.C. Be sure to subscribe. Visit the taxation, litigation and immigration law firm of Coleman Jackson, P.C. online at www.cjacksonlaw.com.

TRANSCRIPT:

ATTORNEY:  Coleman Jackson
LEGAL THOUGHTS
COLEMAN JACKSON, ATTORNEY & COUNSELOR AT LAW

ATTORNEY:  Coleman Jackson

Welcome to Tax Thoughts

  • My name is Coleman Jackson, and I am an attorney at Coleman Jackson, P.C., a taxation, government contracts litigation and immigration law firm based in Dallas, Texas.
  • Our topic for today is: “Economic Impact Payments and other Tax Benefits for those Experiencing Homelessness”.
  • Other members of Coleman Jackson, P.C. are Yulissa Molina, Tax Legal Assistant, Leiliane Godeiro, Litigation Legal Assistant, Reyna Munoz, Immigration Legal Assistant and Mayra Torres, Public Relations Associate.
  • On this “Legal Thoughts” podcast our public relations associate, Mayra Torres will be asking the questions and I will be responding to her questions on this important tax topic: “Economic Impact Payments and other Tax Benefits for those Experiencing Homelessness”.

Interviewer:  Mayra Torres, Public Relations Associate

  • Good afternoon everyone. My name is Mayra Torres, and I am the public relations associate at Coleman Jackson, P.C.  Coleman Jackson, P.C. is a law firm based right here in Dallas Texas representing clients from around the world in taxation, litigation and immigration law.
  • Attorney, thank you for joining us today to discuss Economic Impact Payments and other Tax Benefits for those Experiencing Homelessness.
  • Question 1:
  • Could you give us a general overview of the struggles people experiencing homelessness face in getting the economic impact payments?

Attorney Answers Question 1:

  • Good afternoon Mayra. Yes, I can give a general overview of the struggles people experiencing homelessness face in getting the economic impact payments.
  • There are many misconceptions about who can receive Economic impact payments and who is eligible.
  • Individuals who earned less than $75,000, or $150 if filed jointly, in 2019 or 2020 are eligible for the three rounds of economic impact payments. In 2020, the IRS issued two Economic Impact Payments as part of the economic stimulus efforts. The first payments were up to $1,200 person and $500 per qualifying child. The second payments were up to $600 per eligible person and $600 per qualifying child. For 2021, eligible taxpayers who did not receive the full amount, can claim it as the Recovery Rebate Credit when filing a 2020 tax return. These stimulus checks are a great addition to individuals’ income but for people who need it the most it can be hard to get.
  • Economic payments are sent automatically to most people, but the IRS can’t issue payments to eligible American when information is not available in the IRS’s system. This is due in part to the fact that some individual’s income is low enough that filing a tax return is not required.
  • People might be hindered from claiming economic Impact payments or other tax benefits because they do not have a permanent address or a bank account, or a job. However, as long as they have a Social Security number and are not being supported by someone else who can claim them as a dependent, they are eligible to get economic impact payments as well as other tax benefits.

Interviewer:  Mayra Torres, Public Relations Associate

Question 2.

  • Attorney, you mentioned that some individual’s income is low enough that they don’t have to file taxes. Can they still file a tax return if that is the case?

Attorney Answers Question 2:

  • Mayra, even though there is not a filing requirement for these individuals, they can still file a tax return to claim all the Economic impact payments and tax benefits they are eligible for.
  • Like I said the IRS needs information from people who don’t usually file a tax return. Even if an individual did not have any income in 2019 or 2020; or their income was not large enough to require them to file, they should still file a basic 2020 tax. This only way for the IRS to have that information is for people to file a basic tax return.
  • If an individual hasn’t filed a tax return in years, they can still qualify for the first two Economic Impact Payments when they file their 2020 return by claiming the Recovery Rebate Credit. There’s a special section on IRS.gov that can help: Claiming the 2020 Recovery Rebate Credit if you aren’t required to file a tax return. For the current third round of payments, people who are experiencing homelessness usually qualify to receive $1,400 for themselves. If they are married or have dependents, they can get an additional $1,400 for each of their family members.
  • Filing a 2020 federal income tax return that provides very basic information about the person is something that can be done electronically using a smartphone or a computer. When the IRS receives the return, it will automatically calculate and issue the Economic Impact Payments to eligible individuals.
  • Like I previously stated, as long as an individual has Social Security number and are not being supported by someone else who can claim them as a dependent, they are eligible to receive Economic Impact Payments and other tax benefits under the various programs, such as, the original CAREs Act and the American Rescue Plan Act of 2021.

Interviewer:  Mayra Torres, Public Relations Associate

Question 3:

  • Attorney, I know many individuals received their stimulus check through direct deposit.
  • What if an individual does not have a bank account to include on their tax return for direct deposit?

Attorney Answers Question 3:

  • Answer No 3:
  • Mayra, many financial institutions will help a person who doesn’t have a bank account to open a low-cost or no-cost bank account. Individuals who open accounts will then have an account and routing number available when they file and claim a direct deposit of the Economic Impact Payment.
  • The Federal Deposit Insurance Corporation (FDIC) website has all the details, in both English and Spanish, on opening an account online. The site can be reached by going to https://www.fdic.gov/getbanked.
  • Among other things, people can also use the FDIC’s Bank Find tool to locate a nearby FDIC-insured bank. In addition, Bank On, American Bankers Association, Independent Community Bankers of America, National Credit Union Administration have all compiled lists of banks and credit union that can open an account online.
  • Veterans can visit a website to view the Veterans Benefits Banking Program (VBBP) and learn how to access financial services at participating banks at https://veteransbenefitsbanking.org
  • For those with a prepaid debit card, they may be able to have their refund applied to the card. Many reloadable prepaid cards or mobile payment apps have account and routing numbers that can be provided to the IRS. Individuals would need to check with the financial institution to ensure the card can be used and to obtain the routing number and account number, which could be different from the card number.

Interviewer:  Mayra Torres, Public Relations Associate

Question 4:

  • Attorney, what happens if an individual is not able to choose the direct deposit option to receive their money from the IRS?

Attorney Answers Question 4:

  • If they are unable to choose direct deposit, the IRS can mail a check or debit card for the tax refund and the third Economic Impact Payment to an address of the individual’s choice.
  • Now this does not have to be a permanent address. Individuals experiencing homelessness can list the address of a friend, relative or trusted service provider, such as a shelter, drop-in day center or transitional housing program, on the return filed with the IRS.

Interviewer:  Mayra Torres, Public Relations Associate

Question 5:

  • Attorney, are there any resources available for low income individuals to help them file their taxes with the IRS?

Attorney Answers Question 5:

  • Yes Mayra, individuals can visit IRS.gov an click the File Your Taxes for Free link. Through the IRS’s Free File System, individuals with an AGI of $72,000 or less can file at an IRS partner site. The fastest and easiest way to claim the 2020 Recovery Rebate Credit and Earned Income Tax Credit (EITC) or to get the third Economic Impact Payment is to file a return electronically using IRS Free File. It can even be done using a smartphone or computer
  • If an individual would prefer to receive in-person assistance in filing their taxes and earn moderate income or less, can receive free tac help from trained community volunteer tax preparers. Through VITA (Volunteer Income Tax Assistance) and TCE (Tax Counselling for the Elderly), volunteers prepare basic tax returns at thousands of tax help sites nationwide-e. To find the nearest, location visit https://irs.treasury.gov/freetaxprep or call 800-906-9887. VITA/TCE site availability is updated throughout the filing season, so check back if there aren’t any sites listed nearby.

Interviewer:  Mayra Torres, Public Relations Associate

Question 6:

  • Attorney, what other tax benefits can homeless and low income taxpayers be entitled to receive when they file a tax return?

Attorney Answers Question 6:

  • Mayra, for those experiencing homelessness who have a job, filing a return can have benefits such as getting a refund based on various tax benefits, especially the Earned Income Tax Credit (EITC) for low-and moderate-income workers and working families. To get the credit, federal law requires that a worker live in the U.S. for more than half of the year and meet other requirements, such as having a valid Social Security number, claim a certain filing status and be a U.S. Citizen or resident Alien all year. Therefore, individuals experiencing homelessness, including those who reside at one or more homeless shelters, can meet these requirements.
  • For 2020, the income limit is $15,820 for singles with no children ($21,710 for couples with no children). The income limit is higher for people with children. For example, the limit is $50,594 for singles with three or more children ($56,844 for couples with three or more children). Those who make less than this amount must also meet other eligibility requirements. Because it’s a refundable credit, those who qualify and claim the credit could pay less federal tax, pay no tax, or even get a tax refund. The EITC can put up to $6,660 into a worker’s pocket. The amount varies depending upon the worker’s income, marital status, and other factors. The EITC has special qualifying rules for military members, clergy members and taxpayers and their relatives with disabilities. To find out if they’re eligible, individuals can go on IRS.gov and use the EITC Assistant. It’s available in both English and Spanish.
  • Even if a individual isn’t required to file a tax return, they should still do so to claim the 2020 Recovery Rebate Credit and Earned Income Tax Credit (EITC) and to receive the third Economic Impact Payment under the American Rescue Plan Act of 2021. Bottom line:  File a tax return because you might be entitled to receive 2020 recovery rebate credits and the earned income credit even though you do not earn enough money to ordinarily file an annual tax return.

Mayra Torres’ Concluding Remarks

  • Attorney thank you very much for this very comprehensive and informative presentation on this topic:  “Economic Impact Payments and other Tax Benefits for those Experiencing Homelessness.”
  • Our listeners who want to hear more podcast like this one should subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify or wherever they listen to their podcast. You can follow our blogs by going to our law firm’s website at cjacksonlaw.com.  Everybody take care for now!  Come back in about two weeks, for more taxation, government contract litigation and immigration Legal Thoughts from Coleman Jackson, P.C., which is located right here in Dallas, Texas at 6060 North Central Expressway, Suite 620, Dallas, Texas 75206.
  • English callers: 214-599-0431; Spanish callers:  214-599-0432 and Portuguese callers:  214-272-3100.

THIS IS END OF “LEGAL THOUGHTS” FOR NOW

  • Thanks for giving us the opportunity to inform you about the “Economic Impact Payments and other Tax Benefits for those Experiencing Homelessness”.
  • If you want to see or hear more taxation, government contracts litigation and immigration LEGAL THOUGHTS from Coleman Jackson, P.C. Stay tune!  Watch for a new Legal Thoughts podcast in about two weeks and check our law firm’s website at www. cjacksonlaw.com to follow our blogs.  We are here in Dallas, Texas and want to inform, educate and encourage our communities on topics dealing with taxation, litigation and immigration.  Until next time, take care.

IRS Cautions Taxpayers About Fake Charities and Scammers Targeting Immigrants

By Coleman Jackson, Attorney & Counselor and CPA
August 01, 2021

IRS Cautions Taxpayers About Fake Charities and Scammers Targeting Immigrants
The IRS continues to observe criminals using a variety of scams that target honest taxpayers. In some cases, these scams will trick taxpayers into doing something illegal or that ultimately causes them financial harm. In this blog we will discuss about Fake Charities and Immigrant Fraud which are part of the “Dirty Dozen” of tax scams list in 2021.


Fake charities

Fake charities

Taxpayers should be on the lookout for scammers who set up fake organizations to take advantage of the public’s generosity. Scammers take advantage of tragedies and disasters.

Scams requesting donations for disaster relief efforts are especially common over the phone. Taxpayers should always check out a charity before they donate, and they should not feel pressured to give immediately.

Taxpayers who give money or goods to a charity may be able to claim a deduction on their federal tax return by reducing the amount of their taxable income. However, to receive a deduction, taxpayers must donate to a qualified charity. To check the status of a charity, they can use the IRS Tax Exempt Organization Search tool. It’s also important for taxpayers to remember that they can’t deduct gifts to individuals or to political organizations and candidates.

Here are some tips to help taxpayer avoid fake charity scams:

  • Individuals should never let any caller pressure them. A legitimate charity will be happy to get a donation at any time, so there’s no rush. Donors are encouraged to take time to do their own research.
  • Confirm the charity is real. Potential donors should ask the fundraiser for the charity’s exact name, website and mailing address, so they can confirm it later. Some dishonest telemarketers use names that sound like well-known charities to confuse people.
  • Be careful about how a donation is made. Taxpayers shouldn’t work with charities that ask for donations by giving numbers from a gift card or by wiring money. That’s a scam. It’s safest to pay by credit card or check – and only after researching the charity.


Immigrant fraud

Immigrant fraud

IRS impersonators and other scammers often use threats and intimidation to target groups with limited English proficiency.

The IRS phone impersonation scam remains a common scam. This is where a taxpayer receives a phone call threatening jail time, deportation or revocation of a driver’s license from someone claiming to be with the IRS. Recent immigrants often are the most vulnerable. People need to ignore these threats and not engage the scammers.

A taxpayer’s first contact with the IRS will usually be through mail, not over the phone. Legitimate IRS employees will not threaten to revoke licenses or have a person deported. These are scare tactics.

 

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432 | Portuguese (214) 272-3100

Reporting Foreign Bank and Financial Accounts | LEGAL THOUGHTS

Coleman Jackson, P.C. | Transcript of Legal Thoughts Podcast
Published June 14 ,2021

FBAR - Reporting Foreign Bank and Financial Accounts

LISTEN:

Legal Thoughts is a podcast presentation by Coleman Jackson, P.C., a law firm based in Dallas, Texas serving individuals, businesses, and agencies from around the world in taxation, litigation and immigration legal matters.

This particular episode of Legal Thoughts is a podcast where the Attorney, Coleman Jackson is being interviewed by Mayra Torres, Public Relations Associate of Coleman Jackson, P.C.   The topic of discussion is “Reporting Foreign Bank and Financial Accounts“. You can listen to this podcast by clicking here:

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TRANSCRIPT:

ATTORNEY:  Coleman Jackson
Legal Thoughts
COLEMAN JACKSON, ATTORNEY & COUNSELOR AT LAW

ATTORNEY:  Coleman Jackson

Welcome to Tax Thoughts

  • My name is Coleman Jackson, and I am an attorney at Coleman Jackson, P.C., a taxation, government contracts litigation and immigration law firm based in Dallas, Texas.
  • Our topic for today is: “Reporting Foreign Bank and Financial Accounts”.
  • Other members of Coleman Jackson, P.C. are Yulissa Molina, Tax Legal Assistant, Leiliane Godeiro, Litigation Legal Assistant, Reyna Munoz, Immigration Legal Assistant and Mayra Torres, Public Relations Associate.
  • On this “Legal Thoughts” podcast our public relations associate, Mayra Torres will be asking the questions and I will be responding to her questions on this important tax topic: “Reporting Foreign Bank and Financial Accounts.”

Interviewer:  Mayra Torres, Public Relations Associate

  • Good afternoon everyone. My name is Mayra Torres, and I am the public relations associate at Coleman Jackson, P.C.  Coleman Jackson, P.C. is a law firm based right here in Dallas Texas representing clients from around the world in taxation, litigation, and immigration law.
  • Attorney, thank you for joining us today to discuss the laws that require certain individuals, businesses and other entities to timely report Foreign Bank and Financial Accounts. A very important topic anyone with foreign bank accounts and other assets abroad.
  • Question 1:
  • Could you give us a general overview of the legal source of these legal rules obligating certain individuals to disclose their foreign bank, financial accounts, and other offshore asset holdings. I mean what law requires this; who does it apply to and what are the penalties for failing to comply?  These are all questions everyone with foreign assets probably needs the answer to.  So, Attorney could you explain this in terms easy to understand?

Attorney Answers Question 1:

  • Good afternoon Mayra. Yes, I can give a general overview as to what laws impose these requirements foreign bank accounts disclosures, why Congress say they enacted these statutes, who these disclosure rules apply to and what penalties are imposed on those who fail to timely disclose their foreign holdings.
  • Answer No. 1:
  • The Bank Secrecy Act (BSA) was enacted into law in 1970. The Bank Secrecy Act is codified in 31 USC Sections 5311 et seq.  The law authorizes the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCen) to administer and enforce the law.  The BSA gives FinCen authority to collect information from a U.S. person who have financial interests in or signatory   authority over foreign bank and financial accounts.   The BSA also gives FinCen numerous powers to enforce the law as it relates to financial institutions as well; but that is beyond the scope of this particular podcast.  I am only going to talk about the application of the law to certain U.S. persons as defined in the BSA.
  • The Report of Foreign Bank and Financial Accounts (FBAR), which is FinCen Form 114 required to be filed by April 15th annually to report certain foreign bank and financial holdings by U.S. persons. A timely FBAR is required because foreign financial institutions may not be subject to the same reporting requirements as domestic financial institutions. The FBAR is also a tool used by the United States government to identify persons who may be using foreign financial accounts to circumvent United States law. Information contained in FBARs can be used to identify or trace funds used for illicit purposes or to identify unreported income maintained or generated abroad.  So, this explains what Congress is getting at in terms of certain U.S. persons.  The law is designed to detect tax fraud, money laundering, and other nefarious financial criminal activity.
  • In April 2003, the Financial Crimes and Enforcement Network (FinCEN) delegated enforcement authority regarding the FBAR to the Internal Revenue Service (IRS). The IRS is now responsible for:
  • Investigating possible civil violations;
  • Assessing and collecting civil penalties; and
  • Issuing administrative rulings.
  • But let’s it be clear, Form 114, the annual FBAR filed with FinCen not the Internal Revenue Service. The April 2003 delegation of enforcement authority to the IRS had absolutely no impact on who must file an FBAR (Form 114), or where the Form 114 must be filed or when the FBAR is required to be filed.  FBAR disclosure are filed on FinCen’s website.

Interviewer:  Mayra Torres, Public Relations Associate

Question 2:

Attorney it is abundantly clear why disclosing foreign bank accounts and other offshore assets and financial holdings annually in an FBAR is so important.

Please explain in more detail exactly who is required to file the FBAR?

Attorney Answers Question 2:

  • Under the Bank Secrecy Act, a United States person must file an FBAR under certain conditions that I will explain in a minute. U.S. person is defined in the BSA as: a citizen of the United States, a resident of the U.S.,  Business structured under the laws of any state or territory of the United States; such as, a corporation, partnership, limited liability company, trust and estate.  A U.S. person must file an FBAR with the Financial Crimes Network on FinCen Form 114 to report:
  • a financial interest in or signatory or other authority over one or more financial accounts located outside the United States if
  • the aggregate value of those foreign financial accounts exceeded $10,000 at any time during the calendar year reported.
  • Generally, an account at a financial institution located outside the United States is a foreign financial account. Whether the account produced taxable income has no effect on whether the account is a “foreign financial account” for FBAR purposes. But you don’t need to report foreign financial accounts that are:
  • Correspondent/Nostro accounts,
  • Owned by a governmental entity,
  • Owned by an international financial institution,
  • Maintained on a United States military banking facility,
  • Held in an individual retirement account (IRA) you own or are beneficiary of,
  • Held in a retirement plan of which you’re a participant or beneficiary, or
  • Part of a trust of which you’re a beneficiary, if a U.S. person (trust, trustee of the trust or agent of the trust) files an FBAR reporting these accounts.
  • You don’t need to file an FBAR for the calendar year if:
  • None of your foreign financial accounts, either singularly or combined exceeded $10,000 at any time during the calendar year reported.
  • All your foreign financial accounts are reported on a timely filed consolidated FBAR.
  • All your foreign financial accounts are jointly-owned with your spouse and your spouse and you authorized your spouse to file the jointly held accounts on a timely filed Form 114 by executing Form 114a.  If you own separate foreign accounts, you must file a timely Form 114.

Interviewer:  Mayra Torres, Public Relations Associate

  • I see, so if a taxpayer has foreign financial accounts and the aggregate maximum value exceed $10,000 at any time during the calendar year then they must file Form 114 with the Financial Crimes Network.
  • Question 3:
  • Attorney, what is the due date for filing Form 114 with the Financial Crimes Network to report foreign bank account holdings?

Attorney Answers Question 3:

  • Mayra, that is an excellent question because there are potential grave civil fines and potential criminal consequences for U.S. persons who fail to timely file Form 114 with the Financial Crimes Network. The FBAR is an annual report filed on FinCen Form 114.  The FBAR is due April 15th following the calendar year reported.
  • Taxpayers are allowed an automatic extension to October 15th if they fail to meet the FBAR annual due date of April 15th. You don’t need to request an extension to file the FBAR by October 15th. The October 15th  extension is automatic.
  • If you are affected by a natural disaster, the government may further extend your FBAR due date. It’s important that you review relevant for complete information.
  • If a filer does not have all the available information to file the return by the automatic extension date of October 15th, the filer should file as complete a return as possible and amend the report when additional or new information becomes available.

Interviewer:  Mayra Torres, Public Relations Associate

Question 4:

Attorney, what could happen to a taxpayer who fails to file their required FBAR by the extended filing deadline of October 15th?

Attorney Answers Question 4:

  • If a required FBAR is not filed by the appropriate date the U.S. Person in violation of the Bank Secrecy Act may be subject to civil monetary penalties and/or criminal penalties, or both, for FBAR reporting and/or recordkeeping violations. The exact penalty imposed will depend on all the facts and circumstances of each case. The current maximum penalties for failing to file required FBARs or delinquent FBARs are as follows:
  • For Non-Willful Violations: U.S. persons who inadvertently violate the law are subject to civil penalties up to a maximum of $12,921 for each negligent violation. The 9th Circuit Court of Appeals ruled earlier this year that 31 U.S.C. Section 5341 permits the IRS to impose only one non-willful penalty when an untimely FBAR is filed, no matter the number of foreign bank accounts are held by the taxpayer; but this issue is not settled in all the Circuits.  I don’t think the 5th Circuit Court; which is the Circuit Court of Appeals with federal court jurisdiction over Texas; have not as far as I know addressed this issue as to whether the delinquent FBAR penalty can be imposed based on the number of unreported accounts or whether it is to be imposed on each untimely Form 114.  Taxpayer’s need to understand that the IRS takes a very aggressive posture when imposing the penalties authorized under the Bank Secrecy Act.  I am merely warning U.S. persons with unreported foreign accounts.  The penalties for violations of the Bank Secrecy Act are very severe and are aggressively pursued by the IRS.  The courts tend to decide matters regarding whether the taxpayer acted non-willfully or willfully in kind of mechanical manner; in the sense that, the annual tax return specifically asks the question as to whether the taxpayer owns, has signatory authority over or control foreign accounts.  That question on the Form 1040 tax return must be answered yes or no.  The Form 1040 tax return instructions cautions the taxpayer to consult the form’s instructions before answering the question.  With that said, let’s talk about penalties for willful violations of the Bank Secrecy Act because proving that a taxpayer’s actions were inadvertent or non-willful can be challenging.
  • For Willful Violations: U.S. persons who fail to file Form 114 or fail to retain records of the foreign accounts willfully may be subject to  civil penalties of up to the greater of $129,210, or 50% of the amount in the account at the time of the violation.
  • For a Negligent Violation by Financial Institutions or Non-financial Business or Trade: These types businesses who negligently violate the Bank Security Act’s FBAR requirements may be subject to a negligence civil penalty up to $1,118.  This penalty does not apply to individuals who violates the BSA.
  • For a Pattern of Negligent Activity by a Financial Institution or Non-financial Trade or Business: These types of businesses who engages in a patter of negligent violations of the FBAR rules may be subject to civil penalty for Negligent Violation of $1,078 with respect to any such violation, not more than $86,976. These pattern of negligent activity penalties does not apply to individuals; they apply to businesses.
  • These penalties will be applied if an FBAR is filed late or not at all. If the taxpayer has not been contacted by the IRS about the late FBAR and are not under investigation by the IRS, they may file a late FBAR. To keep penalties to a minimum, this should be done as soon as possible.
  • When filing a late FBAR, it gives the option to provide further explanation of the late filing or indicate whether the filing is made in conjunction with an IRS compliance program. If the foreign financial account is properly reported the late-filed FBAR, and the IRS determines that the FBAR violation was due to reasonable cause, no penalty will be imposed.
  • Taxpayers can be audited by the IRS. Taxpayer’s can file Form 2848, Power of Attorney and Declaration of Representative to authorize a lawyer or other professional to represent them in delinquent FBAR matters and IRS investigations regarding foreign bank accounts and foreign assets and unreported earnings.  Sometimes the IRS discover FBAR issues during routine audit examinations of the taxpayer’s tax returns.  Sometimes delinquent FBARs are discovered during BSA/ Anti-money laundering examinations, counter-terrorist investigations and during informal and formal financial crimes enforcement actions by the Financial Crimes Network and the Office of Foreign Assets Control.  Further, banks must also make regular Suspicious Activity Reports under the Bank Secrecy Act.   So as you can see there are a lot federal agencies involved with enforcement of the Bank Secrecy Act and there are numerous ways the United States government can learn about taxpayer’s foreign accounts.  There are potentially substantial civil penalties that could be assessed against non-compliant taxpayers with unreported foreign accounts and even potentially criminal exposure for FBAR violators.

Interviewer:  Mayra Torres, Public Relations Associate

  • Wow, Attorney, hearing about all those penalties; it is obvious that the IRS and other law enforcement agencies of the U.S. government has a lot of power to enforce these rules against people who don’t follow the Bank Secrecy Act exactly right! The government doesn’t take this matter lightly. It is very important for FBARs to be filed accurately and by the appropriate due date.
  • Question No. 5
  • So Attorney, explain how and where does a taxpayer file an FBAR?

Attorney Answers Question 5:

  • An FBAR must be filed electronically through the Financial Crimes Enforcement Network’s (FinCen) BSA E-Filling System . You access FinCen’s BSA E-Filing Web Portal by going to fincen.treas.gov.
  • I mentioned this fact once before during this presentation; but let me say it again; FBARs are not filed with the taxpayer’s annual tax return. Form 114 is used to file FBARs.  Form 114 is not a tax form.
  • If the taxpayer desires to file Form 114 in paper format, the taxpayer must call FinCEN’s Regulatory Helpline at 800-949-2732 to request an exemption from e-filing. If FinCEN approves the request, FinCEN will send the paper FBAR form to complete and mail to the IRS at the address in the form’s instructions. FinCen will not accept paper-filings on TD F 90-22.1, which is obsolete and was replaced by Form 114 several years ago now) or a printed FinCEN Form 114, which is currently used for e-filing only.
  • If the taxpayer would prefer to have someone else file their FBAR on their behalf, they must sign a Record of Authorization to Electronically File FBARs, to authorize that individual or law firm to electronically file Form 114 on their behalf. FinCEN Report 114a; which I mentioned a while back in this discussion when I was talking about joint-holders of foreign accounts, are not filed with FinCen. Form 114a is for recordkeeping purposes only.  The joint-account holders must present this form for examination in the event FinCEN or IRS ask for it.
  • I would like to note that the law requires that these records be kept for five years from the due date of the FBAR.
  • Records must be kept for each foreign account that are required to be included on Form 114. The records must establish the name on the account, the account number, name and address of the foreign bank, type of account, and maximum value during the year. The Bank Secrecy Act does not precisely mandate the type of document that must be kept by the taxpayer.  It could possibly be bank statements or a copy of the filed FBAR.  Whatever document the taxpayer use to substantiate this required information, must be kept for five years after the due date of the FBAR.
  • In the case of an officer or employee who files an FBAR to report signatory authority over their employer’s foreign financial accounts; the employee is not required to personally keep records on these accounts. But their employer must keep the required records for these foreign accounts.

Mayra Torres’s Concluding Remarks:

  • Attorney thank you very much for this very comprehensive and informative presentation on the topic:  “Reporting Foreign Bank and Financial Accounts.”
  • Our listeners who want to hear more podcast like this one should subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify or wherever they listen to their podcast. You can follow our blogs by going to our law firm’s website at cjacksonlaw.com.  Everybody take care for now!  Come back in about two weeks, for more taxation, government contract litigation and immigration Legal Thoughts from Coleman Jackson, P.C., which is located right here in Dallas, Texas at 6060 North Central Expressway, Suite 620, Dallas, Texas 75206.
  • English callers: 214-599-0431; Spanish callers:  214-599-0432 and Portuguese callers:  214-272-3100.

Attorney’s Concluding Remarks:

THIS IS THE END OF “LEGAL THOUGHTS” FOR NOW

  • Thanks for giving us the opportunity to inform you about the “Reporting Foreign Bank and Financial Accounts”.
  • If you want to see or hear more taxation, government contracts litigation and immigration LEGAL THOUGHTS from Coleman Jackson, P.C. Stay tune!  Watch for a new Legal Thoughts podcast in about two weeks and check our law firm’s website at www. cjacksonlaw.com to follow our blogs.  We are here in Dallas, Texas and want to inform, educate and encourage our communities on topics dealing with taxation, litigation and immigration.  Until next time, take care.

Cash Intensive Businesses Need Good Internal Controls to Substantiate Business Activity

By Coleman Jackson, Attorney & Counselor and CPA
July 17, 2021

Cash Intensive Businesses Need Good Internal Controls to Substantiate Business Activity

Operating a business enterprise with cash can be an IRS audit flag because businesses operating in cash are susceptible to fraudulent financial transactions.  However certain business operations handle a lot of cash in their normal operations.  These businesses are classified in tax parlance as cash intensive businesses.  Convenience stores, donut shops, massage parlors, hair stylist, mini-marts, bodegas, coin operated amusements venues; such as video games, pinball machines, jukeboxes, pool tables, slot machines and other gaming machines to only name a few classic cash intensive businesses.  All of these types of businesses can legitimately operate with a high incident of cash transactions.  So, there is absolutely no badge or indicia of fraud exist in most of these cash intensive businesses.  Marijuana operators are another example of perhaps legitimate businesses operating in cash.  Where the marijuana operators being legal, they must operate in cash because the use, sell and distribution of marijuana is illegal under federal drug enforcement laws even though several states have legalized this drug for medicinal as well as entertaining purposes in some cases.  Since it is illegal under federal law to sell or distribute marijuana, those enterprises that sell and distribute marijuana cannot use the normal banking system.  And certain laundry facilities also are coin operated businesses.  They too are legitimately cash intensive businesses.  All of these cash intensive businesses have one thing in common, cash is fungible and hard to trace.  Therefore, when the IRS examiner comes to audit their books and records, it can be a challenging experience for the auditor and extremely frightening to the cash intensive business owner.

 

Cash Intensive Businesses Need Good Internal Controls to Substantiate Business Activity

It is not lost on the State of Texas and IRS examiner that cash operated businesses can have multiple sets of books and records or no records at all.  And often when they have records, they are poor, incomplete and inaccurate.  The basic issue is proper accounting for transactions during the audit period:  are sales, purchases, and inventory properly and timely accounted for where the operator and the auditor can timely and accurate compute taxes owed and the operator can submit the right amount of taxes to the tax authorities?  These questions are proper concerns of any auditor who examines the books and records of any cash intensive business.  Personal expenses paid out of the cash of the business.  Business expenses paid with cash from receipts without any records.  Personal use of items purchased.  Physical inventories none existent or sporadic which leads to missing, stolen or unaccountable purchased items.  Cash sales recorded on paper or separate ledgers completely separate and distinct from credit card sales registers or any register tape at all.  Multiple employees using the same cash drawers without any accountability or cash reports or registry procedures or system of control.  Now these things could be done intentionally, but, quite often they are done unintentionally.  Many immigrants work in cash intensive businesses and many come to the United States where different cultural and business norms apply with regards to operation of a business enterprise.  They are not familiar with the requirements to keep timely and accurate business records for Texas limited sales, use and excise tax purposes and federal income tax purposes.  Many immigrants are surprised and afraid when the Texas or Federal tax examiner knocks on their door.  Good internal controls can serve the auditor well and lessen the fear of the business owner.

Cash Intensive Businesses Need Good Internal Controls to Substantiate Business Activity

Internal Controls is an accounting process.  It is a very important process in any business to account for the receipts of money, disbursement of money and account for the inventory and property of the business.  Cash intensive businesses should implement strong internal controls because cash is fungible.  Internal controls are the process or systems in place to ensure the efficient and effective capturing of critical data to ensure that the business can run with accountably to its owners and consistent with the owners’ objectives;  produce reliable and accurate financial summaries for management purposes and pursuant to outside obligations; and reports and comply with applicable laws, regulations and ordinances.  In order for a business to have effective internal control requires that the job duties of employees who collect the money, record the money and review the money reports are adequately separated.  Internal controls require documentation, documentation and more documentation.  And this is critical for cash intensive businesses because under the Texas Tax Code all businesses must keep accurate contemporaneous books and records.  The Internal Revenue Code requires the same for federal tax purposes; and it also requires taxpayers to substantiate its receipts and deductions upon IRS examination.  Cash intensive business owners will do well to review their internal controls prior to a visit by auditors from either the Texas Comptroller of Public Accounts or the Internal Revenue Service to ensure that they are in compliance with all applicable tax laws.

 

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432 | Portuguese (214) 272-3100

Choice of Entity and Public Contracting

By: Coleman Jackson, Attorney and Certified Public Accountant
July 01, 2021

Choice of Entity and Public Contracting

As you set out to begin your next public contract, one of your first tasks will be to evaluate the choices in structuring your business.   Entity selection is important, as each type of entity carries its own set of legal and tax attributes. Before you consult with your CPA firm and legal counsel, you will need to give some thought to the following questions:

  • How many owners will we have?
  • Who will our owners be?
  • What type of potential liability will exist for the ownership team?
  • How will the business be financed?
  • How do we want our business profits to be taxed?
  • What is our exit strategy?

These are just a few of the questions that should be addressed before you begin to acquire startup capital, initial loan funding or seek teaming opportunities. Choosing the right entity structure for your construction company, for example, depends on many aspects and factors of your business. One of the main concerns for any business is personal liability. Although no entity structure can guarantee exemption from all liabilities, there are ways to protect yourself and your business, based on your company’s needs. In other words, your business structure affects how much you pay in taxes, your ability to raise money, the paperwork you need to file, and your personal liability.

Choice of Entity and Public Contracting

You’ll need to choose a business structure before you register your business with the state. Most businesses will also need to get a tax ID number and file for the appropriate licenses and permits.

Choose carefully. While you may convert to a different business structure in the future, there may be restrictions based on your location. This could also result in tax consequences and unintended dissolution, among other complications.

Consulting with business counselors, attorneys, and accountants can prove helpful.

Generally, there are five main entity types: sole proprietorships, limited liability companies (LLCs), partnerships, S corporations, and C corporations. The most common of these for construction contractors are LLCs, partnerships, S corporations, and C corporations. Below are brief descriptions of these four main types as well as some advantages and disadvantages of each.

Partnerships

In order to have a partnership, you must have more than one owner.  Unlike proprietorships, they are separate legal entities apart from their owners.  There is no tax rate schedule for partnerships, as they typically do not pay any tax at the entity level, and in a general partnership the income or loss is passed through to the owners on a Schedule K-1.  Each general partner has responsibility for the debts of the partnership.  Of course you may have both general and limited partnership interests.

Partnerships have a lot of flexibility when it comes to income allocation.  Income or loss allocation does not always follow the ownership of the business, as partnership taxation provides some opportunities for special allocations of income, provided the allocation carries ‘economic substance’ within the terms of the tax code.   Partners overseeing specific divisions, contracts or tasks could be rewarded with specific allocations of their department’s financial performance.

A partnership is a pass-through entity owned by two or more persons. Partnerships offer the ability to grow the company with each partner assuming less risk than they would as the sole owner of the business. However, there is a loss of control for partners in a partnership since all partners must approve each business decision. A few things to consider before electing the partnership status are:

Advantages:

  • Flexibility in ownership structure
  • Collaboration on contracts and moral support from additional owners
  • Increased ability to raise capital
  • No double taxation
  • Reduced financial burden on partners
  • New 20% deduction for qualified business income possible (owner tax return)

Disadvantages:

  • Potential disagreements amongst partners
  • Sharing profits with others
  • Applicability of self-employment tax
  • Taxed on the individual level (potential highest rate = 37%)
  • Lack of limited liability (unless operating as a LLC)

 

C-corporation

A C-corporation is an independent legal entity that exists separately from the company’s owners. Shareholders (the owners), a board of directors, and officers have control over the corporation, although one person in a C-corp can fulfill all of these roles, so it is possible to create a corporation where you’re in charge of everything.

This being said, with this type of business entity, there are many more regulations and tax laws that the company must comply with. Methods for incorporating, fees, and required forms vary by state.

Advantages:

  • Owners (shareholders) don’t have personal liability for the business’s debts and liabilities.
  • C-corporations are eligible for more tax deductions than any other type of business.
  • C-corporation owners pay lower self-employment taxes.
  • You have the ability to offer stock options, which can help you raise money in the future.
  • No restriction on ownership
  • Separate legal entity from owners
  • 2018 flat tax rate of 21%

Disadvantages:

  • Income faces double taxation
  • Tax burden is potentially greater than pass-through entities
  • No personal tax credits
  • More expensive to create than sole proprietorships and partnerships (the filing fees required to incorporate a business range from $100 to $500 based on which state you’re in).
  • C-corporations face double taxation: The company pays taxes on the corporate tax return, and then shareholders pay taxes on dividends on their personal tax returns.
  • Owners cannot deduct business losses on their personal tax returns.
  • There are a lot of formalities that corporations have to meet, such as holding board and shareholder meetings, keeping meeting minutes, and creating by laws.

Most small businesses pass over C-corps when deciding how to structure their business, but they can be a good choice as your business grows and you find yourself needing more legal protections. The biggest benefit of a C-corp is limited liability. If someone sues the business, they are limited to taking business assets to cover the judgment—they can’t come after your home, car, or other personal assets.

This being said, corporations are a mixed bag from a tax perspective — there are more tax deductions and fewer self-employment taxes, but there’s the possibility of double taxation if you plan to offer dividends. Owners who invest profits back into the business as opposed to taking dividends are more likely to benefit under a corporate structure.

S-corporation

An S-corporation preserves the limited liability that comes with a C-corporation but is a pass-through entity for tax purposes. This means that, similar to a sole prop or partnership, an S-corp’s profits and losses pass through to the owners’ personal tax returns. There’s no corporate-level taxation for an S-corp.

Advantages:

  • Owners (shareholders) don’t have personal liability for the business’s debts and liabilities.
  • No corporate taxation and no double taxation: An S-corp is a pass-through entity, so the government taxes it much like a sole proprietorship or partnership.
  • Limited liability
  • No double taxation
  • New 20% deduction for qualified business income possible (owner tax return)

Disadvantages:

  • Like C-corporations, S-corporations are more expensive to create than both sole proprietorships and partnerships (requires registration with the state).
  • There are more limits on issuing stock with S-corps vs. C-corps.
  • Taxed on the individual level (potential highest rate = 37%)
  • Limits long-term growth plan

You still need to comply with corporate formalities, like creating bylaws and holding board and shareholder meetings.

In order to organize as an S-corporation or convert your business to an S-corporation, you have to file IRS form 2553. S-corporations can be a good choice for businesses that want a corporate structure but like the tax flexibility of a sole proprietorship or partnership.

LLCs

LLCs have grown in popularity over the recent years because they generally afford the owners with many of the positive attributes of the both the partnership and corporate structures.  They are generally flow through entities taxed as partnerships, however, they may make elections moving forward to be taxed as a C Corporation or an S Corporation.  The ability to ‘morph’ the LLC into whatever you desire it be for tax purposes had made this an increasing entity selection for business owners.

Regardless of your entity selection, please be sure to consult your professional advisors to insure that your business is protected in case any of its owners desire to exit the business, sell their interest, retire, or die unexpectedly.  Think of your teaming opportunities with that next prime or subcontractor and how structure could play an important role in your organization’s success.

Limited liability companies are a popular choice among construction contractors because they provide protection to an owner’s personal assets. All customer or creditor claims against the company are limited to the assets owned by the business. Additional advantages and disadvantages of the LLC structure are:

Advantages:

  • No restriction on who may own an LLC (dependent on tax structure chosen)
  • Flexibility to choose between a partnership or S corporation tax structure
  • LLCs may also be considered single-member LLCs

Disadvantages:

  • Taxed on the individual level (potential highest rate = 37%)
  • Not all states recognize LLCs
  • LLC statutes are not uniform in every state

As you can see, sole props and GPs are light on liability protections, so they expose you to greater legal risk if someone sues your business. But, taxation is simple when you have a sole prop or GP, and you don’t have nearly as many government regulations to comply with. That means more time to do what you love—running your business.

This being said, the simplicity of a sole prop or a partnership makes either of these business entity structures a good starting point for freelancers and consultants, particularly if the industry they’re in brings little legal risk with it.

If your business is in a more litigious industry, on the other hand, such as food service, child care, or professional services, that’s a strong reason to create an LLC or corporation right off the bat. And regardless of industry, as your business grows and more dollars are at stake, that can be the ideal time to “graduate” to an LLC or corporation. What works for a freelancer or hobbyist likely won’t work for someone who is trying to hire employees, bring on additional owners, or expand.

Although it’s certainly possible to change business structures at any point in your business’s journey, some changes are easier to make than others. For instance, it’s relatively simple to convert from a sole prop or partnership to an LLC by filing the right paperwork with your state.

Converting to a corporation, however, is more difficult, particularly if you plan to issue stock. Additionally, converting from a C-corp to an S-corp can bring unexpected taxes. Therefore, before changing your business structure, you’ll want to think through the possible advantages and potential problems associated with doing so and consult a business attorney for professional advice.

Moreover, you’ll want to keep in mind that the IRS places certain limits and deadlines on how often you can change your business’s entity type. Plus, it’s also worth remembering that different government tax plans can change how business entity types are taxed, and this may contribute to how taxes factor into your ultimate decision.

There is a lot of literature available to assist you with this decision, but the experience and guidance of your professional advisors is most helpful in avoiding unforeseen outcomes

All in all, you’ll want to keep the following in mind when deciding among the different types of business entities:

Sole proprietorships and general partnerships are good “starter” entities.

As your business grows and generates more income, you might consider registering as an LLC or corporation.

Think through the pros and cons of each business entity type in terms of legal protection, tax treatment, and government requirements.

Compare the general traits of these business structures, but remember that ownership rules, liability, taxes, and filing requirements for each business structure can vary by state.

business structure

https://www.sba.gov/business-guide/launch-your-business/choose-business-structure

Work with a business lawyer and accountant to get specific help for your business.

Ultimately, although there’s not a single best business entity choice for all small businesses, by referring to this guide and consulting legal or financial professionals, you’ll be able to determine which type is right for your business.

If you have any questions on setting up your entity or considerations to make for switching from one entity type to another, please contact us.

This law blog is written by the Taxation | Litigation | Immigration Law Firm of Coleman Jackson, P.C. for educational purposes; it does not create an attorney-client relationship between this law firm and its reader.  You should consult with legal counsel in your geographical area with respect to any legal issues impacting you, your family or business.

Coleman Jackson, P.C. | Taxation, Litigation, Immigration Law Firm | English (214) 599-0431 | Spanish (214) 599-0432| Portuguese (214) 272-3100

United States Temporary Protected Status designation for Venezuelans residing in the United States on March 8, 2021 | LEGAL THOUGHTS

Coleman Jackson, P.C. | Transcript of Legal Thoughts Podcast
Published April 26,2021.

United States Temporary Protected Status designation for Venezuelans residing in the United States on March 8, 2021

Legal Thoughts is a podcast presentation by Coleman Jackson, P.C., a law firm based in Dallas, Texas serving individuals, businesses, and agencies from around the world in taxation, litigation and immigration legal matters.

This particular episode of Legal Thoughts is a podcast where the Attorney, Coleman Jackson is being interviewed by Reyna Munoz, Immigration Legal Assistant of Coleman Jackson, P.C.   The topic of discussion is “Immigration Matters You Ought to Know About: United States Temporary Protected Status designation for Venezuelans residing in the United States on March 8, 2021”. You can listen to this podcast by clicking here:

You can also listen to this episode and subscribe to Coleman Jackson, P.C.’s Legal Thoughts podcast on Apple Podcast, Google Podcast, Spotify, Cashbox or wherever you may listen to your podcast.

TRANSCRIPT:

ATTORNEY:  Coleman Jackson
Legal Thoughts
COLEMAN JACKSON, ATTORNEY & COUNSELOR AT LAW

ATTORNEY:  Coleman Jackson

Welcome to Immigration Thoughts

  • My name is Coleman Jackson, and I am an attorney at Coleman Jackson, P.C., a taxation, litigation, and immigration law firm based in Dallas, Texas.
  • Our topic for today is: Immigration Matters You Ought to Know About: United States Temporary Protected Status designation for Venezuelans residing in the United States on March 8, 2021. Other members of Coleman Jackson, P.C. are Yulissa Molina, Tax Legal Assistant, Reyna Munoz, Immigration Legal Assistant, Leiliane Godeiro, Litigation Legal Assistant and Mayra Torres, Public Relations Associate.
  • On this “Legal Thoughts” podcast our immigration legal assistant, Reyna Munoz, will be asking the questions and I will be providing the answers to the questions on this very important immigration topic: Immigration Matters You Ought to Know About: United States Temporary Protected Status designation for Venezuelans residing in the United States on March 8, 2021.

Interviewer:  Reyna Munoz, Immigration Legal Assistant

  • Hi Attorney, thank you for joining me today and for taking the time to answer a few questions that I have in regard to the recent USCIS announcement about designating Venezuela Temporary Protected Status.

Question No. 1

Attorney, can you tell me, what this is about?

Attorney Answers Question 1:

  • Hi Reyna, yes what you heard is correct! On March 8, 2021, Secretary Mayorkas designated Temporary Protected Status or TPS for Venezuela. What this does is it allows Venezuelan nationals that are currently residing in the United States to file an initial application for TPS.

Interviewer:  Reyna Munoz, Immigration Legal Assistant

Question 2:

That is great news attorney, I’m sure that this will help a lot of Venezuelan nationals. How long do Venezuelan nationals get to have this new Temporary Protected Status?

Attorney Answers Question 2:

  • Reyna, the TPS designation for Venezuelans is currently for a period of 18 months. That is it currently ends in September 2022.

Interviewer:  Reyna Munoz, Immigration Legal Assistant

Question 3:

Why was this TPS designation for Venezuelans made at this time?

Attorney Answers Question 3:

  • TPS was designated for Venezuela because of the extraordinary and temporary conditions that prevent Venezuelan nationals from returning safely to their home country. The extreme and harsh conditions that currently confronts Venezuela are:
  • Hunger and malnutrition and lack of basic essentials for safety and security and human dignity
  • A growing influence and presence of non-state armed groups
  • Repression and recrimination by state actors, their enablers, and other bad people
  • A crumbling Venezuelan infrastructure

Interviewer:  Reyna Munoz, Immigration Legal Assistant

  • That is very interesting information attorney. It sounds like TPS for Venezuelans is a humanitarian response to dangerous times for our neighbors in Venezuela.

Question No. 4:

Who is eligible to apply for Temporary Protective Status under the new Venezuelan TPS designation?

Attorney Answers Question 4:

  • That is a very thoughtful and insightful question, Reyna, those individuals who are nationals of Venezuela who can demonstrate continuous residence in the United States as of March 8, 2021 are eligible to apply for Temporary Protected Status under this TPS designation. That means they must have been physically residing in the United States on March 8, 2021.
  • These TPS applicants will also have to go through security and background checks to determine their eligibility for TPS.
  • It’s extremely important that Venezuelans residing outside of the United States do not fall for scams and other misinformation from smugglers or others claiming that the border is now open. They must have been residing in the U.S. on March 8, 2021.  People should not risk their lives, or their families lives and health with false information that they can come from Venezuela now and claim TPS. This TPS designation is limited to Venezuelan nationals and is not applicable to citizens from other South American countries.
  • Furthermore, due to the coronavirus pandemic, travel and admission restrictions remains in full force and effect on the U.S. border.

Interviewer:  Reyna Munoz, Immigration Legal Assistant

Question 5:

  • Thank you for explaining this in such a comprehensive manner, attorney. It is very important that people understand that:
  • they must be a Venezuelan national to be eligible for TPS under the Venezuelan TPS designation; and
  • they must have been residing in the United States on March 8, 2021;
  • Question No. 5:
  • When and how can eligible individuals apply for TPS?

Attorney Answers Question 5:

  • Those that would like to file an application for TPS will have to submit an application within the 180-day registration period, that is, March 9, 2021 through September 5, 2021. Keep in mind that they have to be able to show continuous residence in the United States since March 8, 2021 and continuous physical presence in the United States since March 9, 2021.
  • Form I-821 Application for Temporary Protected Status will have to be filed with USCIS and if the individual wishes to apply for employment authorization, they will have to file Form I 765. Furthermore, if a ground of inadmissibility applies, then Form I 601, Application for Waiver of Grounds of Inadmissibility will also have to be filed with the TPS package.

Interviewer:  Reyna Munoz, Immigration Legal Assistant

  • Thank you for that information, attorney.

Question No. 6:

What sorts of evidence will need to be submitted to USCIS in support the TPS application?

Attorney Answers Question 6:

  • The individual can expect to submit evidence such as identity and evidence to demonstrate that they are a national of the designate country such as:
    • A copy of their passport
    • A copy of their birth certificate
    • Any national identity that includes a photograph and/or fingerprint issued by their country
  • The immigrant can also expect to submit entry evidence such as:
    • A copy of their passport; and
    • I-94 Arrival/Departure record
  • Finally, continuous residence evidence will also have to be submitted. This could be evidenced by such documents and information as the following:
    • Employment records
    • Rent receipts, utility bills, receipts or letters from companies
    • School records
    • Hospital records
    • Attestations by church, union, or other organization officials

Interviewer:  Reyna Munoz, Immigration Legal Assistant

  • I’m sure a lot of people that are expecting to apply for TPS will find this information very helpful, attorney.

Question No. 7:

Is there a fee to apply for TPS?

Attorney Answers Question 7:

  • As of March 10, 2021, if the immigrant is applying for Venezuelan TPS and is between ages of 14 and 65 years old and they are applying for an employment authorization card, then the filing fee for the I-821 is $50, the biometric fee is $85, and the I-765 fee is $410 bringing the total USCIS filing fee to $545. These fees could be changed by the government with little notice.
  • Under certain facts and circumstances the TPS applicant can file Form I-912, Application for Fee Waiver in these TPS cases.

Reyna Munoz’s Concluding Remarks:

  • Thank you for this detailed explanation of the new TPS designation for Venezuelan nationals, attorney. Hopefully, many of our Legal Thoughts Podcast listeners or their friends from Venezuela will find this update on the new TPS designation for Venezuelans very helpful.
  • Our listeners who want to hear more podcast like this one should subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify or wherever they listen to their podcast for more taxation, litigation, and immigration Legal Thoughts podcasts. Everybody take care!  Read our taxation, government contract litigation and immigration law firm’s blogs at www.cjacksonlaw.com.  Coleman Jackson, P.C., is located right here in Dallas, Texas at 6060 North Central Expressway, Suite 620 Dallas, Texas 75206.
  • English callers: 214-599-0431 | Spanish callers:  214-599-0432 | Portuguese callers:  214-272-3100.

Attorney’s Concluding Remarks:

THIS IS THE END OF “LEGAL THOUGHTS” FOR NOW

  • Thanks for giving us the opportunity to inform you about “Immigration Matters You Ought to Know About: United States Temporary Protected Status designation for Venezuelans residing in the United States on March 8, 2021.” If you want to see or hear more taxation, litigation and immigration LEGAL THOUGHTS from Coleman Jackson, P.C. Stay tuned! We are here in Dallas, Texas and want to inform, educate, and encourage our communities on topics dealing with taxation, litigation and immigration.  Until next time, take care.