Category Archives: Taxation

Episode 2: Beneficial Ownership Reports Under the Corporate Transparency Act

Legal Thoughts – Episode 2 of the Corporate Transparency Act

COLEMAN JACKSON, ATTORNEY & COUNSELOR AT LAW | Transcript of Legal Thoughts

Published September 11, 2023
Topic: “FINANCIAL CRIMES ENFORCEMENT NETWORK (FINCen), U.S. Treasury’s Beneficial Ownership Information Reporting Requirements”

ATTORNEY INTRODUCTION:

My name is Coleman Jackson and I am an attorney at Coleman Jackson, P.C., a taxation, contracts, litigation and immigration law firm based in Dallas, Texas.

In addition to myself, we have a Legal Assistant, Leiliane Godeiro, Law Clerks, Ayesha Jain and Mlaah Singh, and Admin Assistants, Ernesto Munoz and Michelle Gutierrez.

On today’s “Legal Thoughts” podcast, our Law Clerk, Mlaah Singh, will be interviewing me on the important topic of: “Beneficial Ownership Information Reports and American Small & Medium Size Business’ Obligations Under the Corporate Transparency Act”. Episode No 2 is a continuation of our Legal Thoughts Podcast Series on Corporate Transparency Act.Today’s episode, we will focus on Beneficial Ownership Information Reports; and, what small and medium size business owners must comply with mandatory reporting requirements.

INTERVIEWER INTRODUCTION:

Hi everyone, my name is Mlaah Singh and I am a Law Clerk at the tax, contracts, litigation and immigration law firm of Coleman Jackson, Professional Corporation. Our law firm is located at 6060 North Central Expressway, Suite 620, right here in Dallas, Texas.

Good afternoon Attorney. Thank you for agreeing to sit with me as we continue our discussion of this hot business law topic! Now, let’s begin our second podcast in our Series dealing with The Financial Crimes Enforcement Network’s enforcement of the Corporate Transparency Act as it relates to certain small and medium size American businesses as you explained in excruciating detail a few weeks ago in our first episode of this series of our law firm’s Legal Thoughts Podcasts. Our listeners who missed Episode One should listen to the first episode published a  weeks ago to fully understand this Second Episode; since this Second Episode is a continuation and builds on what Mr. Jackson explained in Episode One about the Corporate Transparency Act and the Anti-Money Laundering Act of 2020.

QUESTION ONE

Attorney Jackson during our last conversation regarding the Corporate Transparency Act was certainly enlightening and somewhat frightening as well. I think the small and medium sized business owners listening to our Legal Thoughts Podcast might have numerous unanswered

Questions. Mr. Jackson, you made crystal clear in your comments in Episode One that a lot of small and medium sized businesses are expected to be impacted by the Corporate Transparency Act. A big question that I have to begin with today is this one: Attorney, exactly how will affected owners of small and medium size companies report their ownership interest?

ATTORNEY ANSWER – QUESTION 1

That is certainly a good question Mlaah to start our Episode 2; and, it is one that will help listeners decipher if they are part of this jurisdiction’s demographic obligated to comply with the Corporate Transparency Act. The short answer is that small and medium size business owners impacted by the Corporate Transparency Act reporting requirements will identify themselves by filing timely Beneficial Ownership Information Reports with the Financial Crimes Enforcement Network which is an agency within the U.S. Department of the Treasury. FinCEN is not the IRS which is also an agency of the Department of Treasury that our audience are likely to be more familiar with when complying with the U.S. States federal tax laws.

Let me try to explain this in more details in simple terms. Mlaah, if an individual’s ownership interest in a required reporting company is less than 25%, that individual would be exempt from the obligation to file a Beneficial Ownership Information Report with the Financial Crimes Enforcement Network. On the other hand, if an individual’s ownership interest in a required reporting company is 25% or greater, that individual would have an obligation to file a Beneficial Ownership Information Report with the Financial Crimes Enforcement Network. Beneficial Owner; therefore, means an individual who owns 25% or more equity interest in a reporting company. The term “reporting company” under the CTA means a business entity structured under any State or Tribal business structuring laws. Such as, business filing articles of organization under the Business Organization Code in Texas and filed with the Texas Secretary of State’s Office; or in other States, businesses filing organizational documents under a similar set of structuring laws. It is extremely important for our podcast audience to understand that each individual within a particular reporting company must file individually a Beneficial Ownership Information Report with FinCEN if they meet the 25% reporting threshold. The BOIR’s are not filed by the entity or at the reporting entity level. 

The CTA places the mandatory reporting obligation directly on the individual owners that meets the ownership interest thresholds that I mentioned a short while ago. Repeat, the individual that owns 25% or more equity interest in the reporting company must comply with your reporting obligations under the Corporate Transparency Act. This is a micro- individual reporting of interest requirement; and it turns the Financial Crimes Enforcement Network’s national database into a concentrated network that maps out any and all ‘substantial control’ of small and medium size business enterprises throughout the United States. As I stressed in Episode One, and again now; the term reporting companies include any business entity structured under any State or Tribal business structuring laws, such as corporations, limited liability companies, and other type of entities.

My dear podcast listener; corporate transparency is not limited to businesses structured as corporations. These reporting requirements apply to mom and pop limited liability companies for example. They were not exempted by Congress or FinCEN in enacting the rules to enforce the Corporate Transparency Act. The CTA Beneficial Ownership Information Reporting requirements apply to the smallest required reporting entities. They are not exempt.

Mlaah, as I pointed out in Episode One, FinCEN’s fundamental objective is to classify all substantial owners to fully enact the intent of Congress in enacting the Anti-Money

Laundering Act of 2020 to combat money laundering, tax evasion, tax fraud, terrorist financing, corruption and other nefarious financial crimes committed by American small and medium sized businesses. The Corporate Transparency Act is a part of the Anti-Money Laundering Act of 2020. FinCEN is charged with enforcing the CTA. Shining sunlight on American small and medium sized businesses is what the CTA is all about. This FinCEN national database is designed to show FinCEN, the IRS and others who substantially control American business enterprises.

There are ongoing discussions with respect to access controls, constitutional, and privacy issues associated with FinCEN’s national database. The fundamental policies in Congress enacting these laws and giving the U.S. Department of Treasury these broad enforcement powers is to expose those who own and substantially control American small and medium sized businesses to FinCEN, the IRS and other law enforcement agencies (domestic and foreign) for the good of the United States economy, where American citizens have lost job opportunities, business secrets and know-how and even many Americans have been priced out of real estate markets by concealed purchasers all over the country; for the good of our national security by detecting and preventing illicit financial activity where businesses and owners have concealed their real identities and hidden their criminal activity by using shell business entities and used deception for years in anonymous activity, such as, hidden ownership structuring schemes and like behavior in many industries throughout the country.

INTERVIEWER: Mlaah Singh, Tax Law Clerk

Thank you Attorney. This insight that you shared with our Legal Thoughts podcast audience will definitely help business owners make timely decisions to protect their company under FinCEN’s new regulations. Having this data across businesses within the spectrum that you just mentioned will indeed likely protect this country from small and medium sized businesses engaged in tax fraud, terrorist financing, corruption and other types of activities that diminish economic opportunities and damage our economy and our country more expansively. Who owns American small businesses will now be securely held within the U.S. Treasury’s national database. Now that our audience understands who is impacted by this regulation and why this Act is designed to shine bright lights on business ownership in our country; my next question is this one.

QUESTION TWO 

Mr. Jackson, could you please explain in detail what information exactly must be disclosed in a Beneficial Ownership Information Report? What information about these small and medium sized business owners stored in FinCEN’s national database?

ATTORNEY ANSWER – QUESTION TWO

That is an astute question because the types of information required to be disclosed by small and medium sized American business owners and the information stored in FinCEN’s national database goes to heart of whether FinCEN can accomplish its mandate under the Anti-Money

Laundering Act of 2020 to ferret out money launderers, tax fraud artists, tax evaders and others allegedly engaged in financial crimes. It is important for podcast audience to understand that there really isn’t too much information required to be disclosed in a Beneficial Ownership Information Report; but the value of that information for investigatory purposes by FinCEN, the Internal Revenue Service and others could be invaluable in investigating tax fraud, tax evasion and all of the other crimes that law enforcement is trying to expose and uncover. This is a list of the required information that must be reported by Beneficial Owners of Small and Medium Sized American Business impacted by the CTA:

  1. The Beneficial Owners Legal Name;
  2. The Beneficial Owner’s Date of Birth;
  3. The Beneficial Owner’s Residential Address Address;
  4. The Reporting Company’s Business Address; and
  5. Government Issued Photo Identification Card, such as, State Driver’;s License, Passport, or other valid identification document.

This document must be uploaded to FinCEN along with the Beneficial Ownership Information Report. Repeat: this type of information, although not extensive, is being collected by FinCEN to carry out its enforcement obligations under the Corporate Transparency Act relating to its efforts to prevent money laundering, tax fraud, tax evasion, terrorist financing and other financial crimes. The required information on the substantial ownership of small and medium sized businesses will be stored on the Financial Crimes Enforcement Network’s national database. Once the impacted small and medium sized business owner complies by giving FinCEN all of the information that I have just mentioned by sending it directly to FinCEN, the impacted small and medium sized business owner will have successfully fulfilled their obligations under the Corporate Transparency Act. I think I should mention here however that FinCEN could have questions concerning the submissions and request additional information or otherwise investigate based on the submissions.

These CTA reporting requirements become effective for business structured after January 1, 2024 on January 1, 2024 and the impacted business owners are required to file their Beneficial Ownership Information Reports within 30 days of their Article of Organization is approved

by the applicable State or Tribal government agency. These CTA reporting requirements become effective for all other impacted businesses on January 1, 2025. In other words, businesses existing or structured before January 1, 2024 have another year to comply. Any required reporting entity and its beneficial owners should make appropriate plans to begin complying with the Beneficial Ownership Information Report requirements right away since the drop deadline for all impacted businesses is January 1st , 2025. This gives beneficial owners in businesses started before January 1, 2024 from around the nation exactly one calendar year to counsel with their legal counselors and advocates to prepare and comply with their obligations under the Corporate Transparency Act.​

Finally Mlaah, in answering your question; I think it is very important for me to point out to our Legal Thoughts podcast audience that; although, these Beneficial Ownership Information Reports are to be held within FinCEN’s secure national database, it is extremely important, for everyone to understand who will have access to this information and the procedures or safeguards in place to protect this information. Now these access protocols are not absolutely clear at this time. But it appears that there is a limited number of governmental corporations that may be granted access to specific information by sending an access request to the Financial Crimes Enforcement Network explaining the justification for their request to search FinCEN’s national database of owners of small to medium sized businesses. According to FinCEN’s final rules implementing the CTA; FinCEN will manually reject and accept requests through their

Beneficial Ownership IT system. The rules go on to say that business owners’ information will be securely held and will only be distributed upon consent from both the requestor and the company for their BOI’s to be shared externally.

The Final Rule implementing the CTA says that the corporations and the governmental agencies able to access Beneficial Ownership

Information Reports upon consent are as follows.

– 1. U.S., Federal, State, Local, and Tribal governmental agencies

– 2. Foreign law enforcement agencies, judges, prosecutors, and central authorities

– 3. Financial institutions who request BOIs with the justification of complying with their obligations under the Bank Secrecy Act and other statutes and laws regarding “know your customer banking laws” and the bank’s consumer due diligence requirements. This

includes actions required of these financial institutions under law.

– 4. Federal functional regulators and appropriate regulatory agencies acting in supervisory capacity accessing the financial condition of financial institutions

– 5. Finally, the U.S. Department of Treasury; specifically FinCEN which is the Financial Crimes Enforcement Network and the IRS which is the Internal Revenue Service (the agency charged with the responsibility to enforce America’s federal tax laws).

Finally, FinCEN’s Final Rule implementing the Corporate Transparency Act states that information may be extracted from FinCEN’s national database only for investigative purposes and within the bounds of law enforcement. Beneficial owners may still trust the security of this system as information must be formally and officially approved by the Financial Crimes Enforcement Network before release to the organizations, agencies and others.

 

INTERVIEWER: Mlaah Singh, Tax Law Clerk

Thank you for that insight Mr. Jackson. The implementation of the Corporate Transparency Act seems to be extremely comprehensive and should improve the United States government in its ability to detect tax fraud, tax evasion and other financial crimes around America. Our viewers, the Attorney, might be wondering what kind of punishment power are given to FinCEN under the Corporate Transparency Act. 

QUESTION THREE

Everyone might be wondering what kind of penalties can be imposed on business owners who refuse to comply or file these beneficial ownership information reports? In the third podcast in our series, are you planning to talk about punishment under the CTA? Can you tell our Legal Thoughts Podcast audience what they can expect from our next couple of podcasts in this CTA podcast series (say podcast three and four; what topics will you talk about as it relates to the implementation of the CTA by FinCEN)?

ATTORNEY ANSWER – QUESTION THREE

Okay Mlaah, thank you for teeing up our next Legal Thoughts podcast in this series, which is Episode 3 where I intend to focus on the civil and criminal penalties that can be assessed against violators of the Corporate Transparency Act’s beneficial owner reporting requirements. So, your final question is an excellent question.

Mlaah, given the fact that there are many aspects of this jurisdiction that will impact a large demographic in America I will attempt to answer the following types of questions in Episode 3 in this CTA series of Legal Thoughts:

  1. What are the penalties for non-willful violations of the Corporate Transparency Act?
  2. What are the penalties for willful violations of the Corporate Transparency Act?
  3. What is the range of monetary penalties allowable under the Corporate Transparency Act?
  4. What is the range of criminal penalties which could lead to federal jail time for violators of the CTA upon conviction?

For now let me make it clear to our audience, the Corporate Transparency Act has teeth. Small and medium sized businesses impacted by the CTA could incur serious civil penalties and several years in federal prison for failure to file timely Beneficial Owner Information Reports with the Financial Crimes Network. Our audience should stay tuned to future publications of our law firm’s Legal Thoughts Podcast.

INTERVIEWER WRAP-UP: Mlaah Singh, Tax Law Clerk

Attorney, thank you for sitting with me today in our first podcast on the Corporate Transparency Act and FinCEN’s Beneficial Information Owner Reporting Requirements We plan to record and publish in a few weeks about three to four more podcasts in this series on the Corporate Transparency Act where Mr. Jackson intends to shed more light on the impacts of the CTA on certain small and medium sized business owners.

Our listeners who want to hear more podcasts like this one please subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify or wherever you listen to your podcast. Everybody take care! And come back in about two weeks, for more taxation, business structuring, contracts litigation and Immigration Legal Thoughts from Coleman Jackson, P.C., 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 CLOSING REMARKS:

I want to thank our Legal Thoughts Podcast audience for giving us your attention today as our Law Firm’s Law Clerk, Mlaah Singh, interviewed me with respect to the Financial Crimes Enforcement Network’s Beneficial Owner Information Reports and its impact on certain small and medium sized business owner’s obligations under the Corporate Transparency Act. We intend to talk more about the FinCEN implementation of the CTA in a couple more podcasts in the next few weeks or so. Our listeners should stay tune for future podcast in this series; definitely, our listeners who run their own businesses should tune into Episode 3 where I go through the possible civil and criminal penalties imposed on violators of the Corporate Transparency Act’s Beneficial Ownership Information Reporting requirements!

If you want to see or hear more taxation, business structuring and contracts litigation and immigration LEGAL THOUGHTS from Coleman Jackson, P.C. Subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify or wherever you listen to your podcast.

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.

Episode 1: An Overview of the Corporate Transparency Act

Legal Thoughts – Episode 1 of the Corporate Transparency Act

COLEMAN JACKSON, ATTORNEY & COUNSELOR AT LAW | Transcript of Legal Thoughts

Published August 28, 2023
Topic: “FINANCIAL CRIMES ENFORCEMENT NETWORK (FINCen), U.S. Treasury’s Beneficial Ownership Information Reporting Requirements

 

Attorney Introduction:

My name is Coleman Jackson and I am an attorney at Coleman Jackson, P.C., a taxation, contracts, litigation and immigration law firm based in Dallas, Texas, United States of America. In addition to myself, we have our Legal Assistant, Leiliane Godeiro, Law Clerks, Ayesha Jain and Mlaah Singh, and Admin Assistants, Ernesto Munoz and Michelle Gutierrez.

On today’s “Legal Thoughts” podcast, our Law Clerk, Mlaah Singh, will be interviewing me on the important topic of: “Beneficial Ownership Reports” This is a series of podcasts, and today’s episode, which is our first podcast in this series will focus on: “An Overview of the Corporate Transparency Act (CTA)”

Interviewee: Hi everyone, my name is Mlaah Singh and I am a Law Clerk at the tax, contracts, litigation and immigration law firm of Coleman Jackson, Professional Corporation. Our law firm is located at 6060 North Central Expressway, Suite 620, right here in Dallas, Texas, United States of America.

Interviewer Introduction:
Good afternoon Attorney; thank you for agreeing to sit with me as I interview you with respect to this hot business law topic: “FinCEN Beneficial Ownership Information Reports” Let’s get started with our first podcast in this Series: A Brief Overview of the Corporate Transparency Act! Attorney, this topic seems to be timely and very-very important for our Legal Thoughts podcast audience. I look forward to interviewing you on the Corporate Transparency Act.
Question Number One:
It seems like this law will impact practically every small and medium size business in America. Is that right? Could you explain what public policy goals are behind the enactment of the Corporate Transparency Act?

Interviewee: Coleman Jackson, Lawyer

ATTORNEY ANSWER – QUESTION 1

Mlaah, you are absolutely right with respect to the potential scope and impact of the Corporate Transparency Act. No one should be fooled by the word ‘corporate’ in the title of the law. This law is going to impact small and medium size businesses structured and doing business in the United States under State business structuring laws whether they are a corporation or not. Your question is a very astute question. So let me begin with why Congress enacted the Corporate Transparency Act. In 2020, the Anti Money Laundering Act was enacted by Congress with the intent to detect, expose and prevent money laundering and other nefarious financial crimes. The Act hoped to increase financial information sharing between companies and their respective partners, subsidiaries, and with their international locations or operations. Under this statute, the Financial Crimes Enforcement Network (FinCEN) was charged with the authority and responsibility to complete a three-year study to ensure that the impacts of this Act on American businesses was a positive one. Congress’ goal in enacting the statute was to combat money-laundering, detect financial corruption, and other nefarious business activities in American business. The Corporate Transparency Act, or CTA is Section 6403 of the Anti-Money Laundering Act of 2020. The CTA was enacted in 2021 and its effective date is January 1, 2024. It is estimated that the national implications of enactment of the Corporate Transparency Act on American businesses will be huge. More than 32 million small and medium sized companies throughout every State in the United States are expected to be impacted.
That is in a nutshell why our law firm is recording this new Corporate Transparency Act Legal Thoughts podcast series. We think that it is very important that our podcast audience know what the CTA does, who it impacts, what is required of them, and the potential civil and criminal consequences if small and medium size businesses do not timely comply with the Corporate Transparency Act.

Companies in America impacted by the CTA will have to file Beneficial Ownership Information Reports with the Financial Crimes Enforcement Network that will be accessible within one secure national database that holds vital information in order to improve the U.S. Department of the Treasury’s ability to detect, oversee and prevent financial crimes. The Internal Revenue Service (IRS) is likely to improve its ability to ferric out tax fraud, tax evasion other tax crimes exposed when the real owners (beneficial owners) of U.S. businesses are required to give their lawful names, addresses and contact information in Beneficial Ownership Information Reports filed with FinCEN beginning January 1, 2024. I will explain the Beneficial Owner Reporting requirements in more detail in a future Legal Thoughts podcast in this CTA series. Our audience, if interested in knowing more about the CTA, should subscribe to our Legal Thoughts podcast.

According to the Congressional record and the Federal Register Final Rule 31 CFR Part 1010 published by the Financial Crimes Enforcement Network; some reasons for enacting the CTA are to “help prevent and combat money laundering, terrorist financing, corruption, tax fraud and other illicit activity”. Integrity in American businesses is vital to the vibrancy and health of the economy of the United States and, frankly, the health of the global economy. I think the public policy behind the U.S. Congress in enacting the CTA is grounded on this fundamental principle objective. Corruption is a contaminant that destroys fair competition and thereby damages everyone’s potential.

As I mentioned early in the podcast, the Financial Crimes Enforcement Network (FinCEN); which is an agency of the United States Department of Treasury, is the federal agency empowered with the authority and responsibility to enforce the Corporate Transparency Act. This organization is commonly referred to as simply “FinCEN”. FinCEN is the same agency where banks have reported certain suspicious banking transaction activities for years. FinCEN is the same agency where we have assisted clients to file FBARs reporting their foreign bank accounts and other foreign assets and holdings. FBARs currently are filed each year with FinCEN on or before April 15th.FinCEN is charged with the authority and power to doggedly work to collect and analyze vital information regarding domestic and foreign financial affairs. To combat money laundering, terrorist financing, fraud, and a plethora of other financial crimes. FinCEN’s mission is to protect the integrity of American businesses and their relationship with their government. Dishonesty, corruption and fraud unchecked erodes trust and thereby destroys relationships.

INTERVIEWER: Mlaah Singh, Tax Law Clerk

Interviewer Comment: 

Thank you Attorney. I think our audience can understand now why the CTA was enacted. Everyone of us should be given the opportunity to excel, contribute and serve our country and contribute to the global good. Unbridled and unchecked dishonesty, fraud and corruption prevents us individually and collectively as a country from achieving our true potential. Attorney I think it’s good that you intend to shine more light on this topic by doing more podcasts on the impact of the Corporate Transparency Act on small and midsize businesses throughout our country.
Question Number Two:
Interviewer: My second question for you today, Attorney, is my final question of the day on this topic; and, it is this one: What other areas are you planning to discuss in our future podcast regarding the Corporate Transparency Act?

Interviewee: Coleman Jackson, Lawyer

ATTORNEY ANSWER – QUESTION 2

Mlaah, your comment is a good summary of what I said about the public policy behind the United States Congress enacting the Corporate Transparency Act of 2021. As for your second question; in future podcast on the CTA, I intend to explain the following:
1. What the Corporate Transparency Act requires;
2. Who must comply with the Corporate Transparency Act;
3. What must small and medium sized businesses do to comply to FinCEN;
4. Where, when, and how individuals may file their Beneficial Ownership Information Report
5. What are civil and criminal penalties can be applied for failure to comply with the Corporate Transparency Act

INTERVIEWER WRAP-UP : Mlaah Singh, Tax Law Clerk

Attorney, thank you for sitting with me today in our first podcast on the Corporate Transparency Act and FinCEN’s Beneficial Owner Reporting Requirements. Today’s podcast was just an overview of the public policy behind Congress’ enacting the Corporate Transparency Act. We have about three to four more podcasts scheduled in this series where our law firm intends to shed more light on the impacts of the CTA.

Our listeners who want to hear more podcasts like this one please subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify or wherever you listen to your podcast. Everybody take care! And come back in about two weeks, for more taxation, business structuring, contracts litigation and immigration Legal Thoughts from Coleman Jackson, P.C., 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 CLOSING REMARKS:

Thank you all for giving us your ear today on the Corporate Transparency Act (CTA) Overview”.

We intend to talk more about the FinCEN implementation of the CTA in several more podcasts in the next few weeks or so. Our listeners should stay tuned for future podcasts in this series; definitely, our listeners who run their own businesses!
If you want to see or hear more taxation, business structuring and contracts litigation and immigration LEGAL THOUGHTS from Coleman Jackson, P.C. Subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify or wherever you listen to your podcast.
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.

Episode 3: Dealing with IRS Exams (Worker Misclassification)

Legal Thought’s – Episode 3 of Dealing with IRS Exams (Worker Misclassification)

Coleman Jackson, P.C. | Transcript of Legal Thoughts
Published August 14, 2023

DOL Worker Classification Test | Horst Insurance

Attorney introduction:

Welcome to Legal 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.

In addition to myself, we have Leiliane Godeiro – Litigation Legal Assistant, and our administration staff Ernesto Munoz and Michelle Gutierrez.

On today’s “Legal Thoughts” podcast, our Litigation Legal Assistant, Leiliane Godeiro will be interviewing me in our continuing federal tax series entitled, “ Dealing with the IRS”.  In todays Legal Thoughts podcast the attorney will be talking about misclassification of a workers as an independent contractor when the worker should be classified as an employee of the employer.  This is Episode 3 in our Podcast series entitled Dealing with the IRS.  Here its dealing with the IRS examination division

Interviewer Introduction to the Audience:

Hi everyone, my name is Leiliane Godeiro and I am a Litigation Legal Assistant at the tax, litigation and immigration law firm of Coleman Jackson, Professional Corporation. Our law firm is located at 6060 North Central Expressway, Suite 620, right here in Dallas, Texas, 75206.

Good afternoon Attorney; thank you for being here with me to today as I interview you in our continuing podcast series entitled; “Dealing with the IRS”.

In this third episode in our law firm’s Legal Thoughts Podcast Dealing with the IRS series,  the focus today will be employer misclassification of workers.

 Attorney, let’s get started.

QUESTION 1: Attorney, please explain, why the classification of a worker is of any concern to the IRS to begin with?

 

Interviewee: Coleman Jackson, Lawyer

ATTORNEY ANSWER – QUESTION 1

Good afternoon Leiliane;

Definitely for sure the Internal Revenue Service is very much interested in how workers are classified for tax purposes for all the reasons I am going to explain in a few minutes. But let me point out at the outset that how a worker is classified is not simply the concern of the IRS, workers themselves should be very concerned how they are classified; the Texas Work Force Commission also cares about how Texas workers are classified for labor law and tax law purposes; and the U.S. Department of Labor and other federal, state and local governmental agencies are also concerned about how workers are classified for all sought of societal reasons.

Now let me turn to the law that imposes this duty to care about worker classification squarely on the shoulders of the Internal Revenue Service which is the federal agency tasked with the responsibility to enforce the nations federal tax laws.

In this particular podcast; we are limiting our discussion of worker classification to federal tax matters. So, let me answer your question from – why should the IRS care about worker classification?

First, United States Code Chapter 26 gives the United States Treasury and the Internal Revenue Service which is the enforcing agency of the Treasury to oversee the application of the United States federal tax statutes.  26 U.S.C. is commonly referred to as the Internal Revenue Code.

Second, the Internal Revenue Service (the IRS) is the agency tasks with enforcing the Internal Revenue Code.

Third, the Internal Revenue Code, courts and the IRS has established rules for determining whether a worker is classified as an employee, a statutory employee, statutory nonemployee or independent contractor.

Fourth, there are significant tax consequences of worker classification for those who hired the worker and for the worker as well.

INTERVIEWER: Leiliane Godeiro, Litigation Legal Assistant

Interviewer Comment:  Attorney, this sounds like it could be complicated!

QUESTION 2: Attorney can you explain in clear language what these different classifications of worker mean?

 

Interviewee: Coleman Jackson, Lawyer

ATTORNEY ANSWER – QUESTION 2

Okay let me try to explain these terms:

First, the term employee is the common law 20 factor test characteristics established by the United States Supreme Court in a case decided around 1954. This is a common law test that contain 20 keep factors devised by the Court basically turns on the degree of control the employer of that particular worker has over the means, method, and results of the workers activities. The Texas Labor Code uses this same type of language when defining the term ‘employee’.  Workers performing under this degree of control ( or right of control by the person who hires them) are called  “Common Law Employee”. Most people refer to the ‘common law employee’ as simply ‘employee’.

Second, the term Independent Contractor applies to workers in the first category who do not meet the definition of common law employee. Independent Contractors excise control and independents not only over their results, but, their methods and means of carrying out their task. Independent Contractors  can experience monetary loss as the results of their work; whereas, employees typically receive their same salary or compensation whether the project or assignment generates a profit or loss.

Third, the term Statutory Employee is created by and defined in 26 USC (IRC Section 31201(d(3)) as workers performing services in four principal occupational areas: (a) certain drivers who distribute certain beverages, food-products and other goods or products, (b) workers from their home who are like fabricators, (c) traveling sales people who distribute merchandise for resale, and (d) life insurance sales persons.

Fourth, Statutory Non-Employees is created by and defined in 26 USC (IRC Sections 3506 and 3508) as certain real estate agents, direct sellers and certain placement service workers.

I left out some of the complexities of these Internal Revenue Code Sections.  The most important thing for our audience to know is that statutory workers are “employees”.  They are not independent contractors.

INTERVIEWER: Leiliane Godeiro, Litigation Legal Assistant

Interviewer Comment: That sure came through loud and clear.  The main thing is whether the worker is properly classified as an independent contractor or whether they should be classified as an employee.  That much you have made clear! Now that you have made what these worker classifications mean is clear to us

QUESTION 3: What are the significant tax consequences of all this worker classification stuff?

 

Interviewee: Coleman Jackson, Lawyer

ATTORNEY ANSWER– QUESTION 3

The tax consequences to the various worker classifications that we have been discussing are these—

First, those who hire a ‘common law employee’ are required under the Internal Revenue Code to withhold federal income taxes, withhold federal insurance contributions act taxes and pay federal unemployment taxes on wages and compensation paid to an employee. Employers must give employees Form W-2, they must send W-2 to the Social Security Administration.  Employers are also required to compete Form I-9 on every employee and maintain I-9 files on each employee hired within days of the new hire.  Employers are also required to file quarterly returns to the IRS (Form 941) and annual reports as well (Form 940).

As for reporting requirements and filing requires, there is no distinction between a worker classified as a common law employee and those classified as statutory employee.

Second point I like to make is this one. Those who hire independent contractors are not typically required to make any withholdings from the workers pay check. But there can be instances where federal withholding laws impose a duty on the payor to withhold certain percentages from the payees pay check.  But there is never a fica or futa tax withholding or payment requirement on the payor of an independent contractor.  Independent Contractor compensation is typically reported on Forms 1099- Miscellaneous and 1099-NEC as appropriate depending upon the reason for the payment.  No reports are sent to the Social Security Administration on payments to independent contractors.  The only report filed with the IRS by those who employ an independent contractor is the Forms 1099 just mentioned.

Finally, as for those workers who are precluded from being classified as employees under the Internal Revenue Code Sections that I mentioned earlier, the reporting for statutory non-employees must be handled very similar to those of the independent contractor, which I will explain in detail next. No withholding requirements apply under normal situations; but, remember under some circumstances up to 30% mandatory withhold rules apply to payments to certain types of individuals under the United States tax law. Those who hire statutory non-employee workers are required to give them Forms 1099- Miscellaneous and 1099-NEC as appropriate and file appropriate copies with the IRS.

Keep in mind, I have left out all of the requirements imposed by State Law on those who hire workers. I left any discussion of this out because this podcast is limited to federal tax requirements and consequences for misclassification of workers.

INTERVIEWER: Leiliane Godeiro, Litigation Legal Assistant

Interviewee’s Comment:  Absolutely attorney; this is only about federal tax law; but, if anyone in our audience want to hear a podcast about Texas tax laws as to how they apply to employers, employees or independent contractors, feel free to write us, call us or email us your request.

QUESTION 4:

Attorney to wrap this up.  My fourth question is this:  What happens if IRS exam determines that a worker is  misclassified?  I mean is anyone in big trouble?

 

Interviewee: Coleman Jackson, Lawyer

ATTORNEY ANSWER – QUESTION 4

Not necessarily. It just depends upon why the worker is misclassified. It will mater whether it is by mistake or whether the workers are misclassified intentionally.  There are things the employer can do to correct the situation; and, in fact there are things a worker can do to find out whether they are properly classified.  Let me start first with things a worker can do:

The worker can file IRS form SS-8 with the Internal Revenue Service to ask for a determination based on the facts and circumstances of their employment.

Now as for those who hired the worker; the IRS has several voluntary disclosure programs for employers who may have misclassified their workers. These programs can be used even while under audit examination:

1. The Voluntary Classification Settlement Program (VCSP) permits qualifying taxpayers to reclassify workers as employees for employment tax purposes and receive a reduced penalty. The VCSP has strict guidelines as to who can qualify to use this amnesty type program;

2. The second relief valve for employers who misclassified workers as independent contractors when they are not, is referred to as the Section 530 relief program. This program under created under the Revenue Act of 1978 can be relied on by taxpayers even while under IRS examination.

3. The IRS also have other tax position disclosure programs that might work in this misclassification of worker space.

4. Any employer who is not sure how there workers should be classified can ask the IRS by filing an SS-8.

INTERVIEWER WRAP-UP: Leiliane Godeiro, Litigation Legal Assistant

Attorney, thank you for being here today with us, this information about dealing with an IRS when worker classification is a problem. Hopefully our audience finds it informative and helps them to know their rights as taxpayers; know how to protect their rights in the unfortunate event that they or their business has an IRS examination involving misclassification of their work force as independent contractors when they ought to be classified as employees. Likewise workers who are misclassified also suffer from this misclassification whether it was done intentionally or by accident, Attorney.

Our listeners who want to hear more podcasts like this one should subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify or where ever you listen to your podcast. Everybody take care! And come back in about two weeks, for more taxation, contracts, litigation and immigration Legal Thoughts from Coleman Jackson, Professional Corporation, 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 CLOSING REMARKS:

This is the end of “LEGAL THOUGHTS” for now

Thank you for giving us your valuable time this morning and listening to our law firm’s Legal Thoughts Podcast. This has been the first episode in our new podcast series entitled dealing with the IRS. Hope you enjoyed Episode Three: “ Dealing with an IRS Exam regarding misclassification of workers”.

If you want to see or hear more taxation, contracts, litigation, and immigration LEGAL THOUGHTS from Coleman Jackson, Professional Corporation. Subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify, or wherever you listen to your podcast.

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.

Episode 2: “Dealing with IRS Liens”

Legal Thought’s – Episode 2 of Dealing with IRS Liens

Coleman Jackson, P.C. | Transcript of Legal Thoughts
Published July 31, 2023

Is There a Statute of Limitations on IRS Tax Liens? - SH Block Tax Services

Attorney introduction: Welcome to Legal 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.

In addition to myself, we have Leiliane Godeiro – Litigation Legal Assistant, and our administration staff Ernesto Munoz and Michelle Gutierrez.

On today’s “Legal Thoughts” podcast, our Litigation Legal Assistant, Leiliane Godeiro will be interviewing me in our continuing federal tax series entitled, “ Dealing with the IRS”. In todays Legal Thoughts podcast the attorney will be talking about IRS liens and the taxpayers’ options in dealing with them. This is Episode 2: “Dealing with IRS Liens”.

INTERVIEWER: Leiliane Godeiro, Litigation Legal Assistant

Hi everyone, my name is Leiliane Godeiro and I am a Litigation Legal Assistant at the tax, litigation and immigration law firm of Coleman Jackson, Professional Corporation. Our law firm is located at 6060 North Central Expressway, Suite 620, right here in Dallas, Texas, 75206.

Good afternoon Attorney; thank you for being here with me to today as I interview you in our continuing podcast series entitled; “Dealing with the IRS”.

In this second episode in this Legal Thoughts Podcast series,  our topic today is  “Dealing with IRS Liens”.

Attorney, let’s get started.

QUESTION 1: Attorney, please explain, what is an IRS lien?

ATTORNEY ANSWER – QUESTION 1:

Good afternoon Leiliane;

The Federal Tax Line Act of that was enacted into law in 1966 created Internal Revenue Code Sections 6321 through 6326. These sections 26 United States Code, provides that “if any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, additions to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.”

Leiliane, what all this means in plain English is that the following facts have been established:

1.The IRS has made a tax assessment against the taxpayer (tax assessment simply means the IRS has put on the taxpayers’ tax account that the taxpayer owes the United States government due to taxable income tax, gift tax, estate tax or some other form of lawful taxes, penalties or interest; and

2.The IRS has followed all lawful procedures and notified you that you owe the outstanding taxes, penalties and interest; and

3.You the taxpayer has ignored the IRS notices to you or you otherwise has not made arrangements to satisfy the outstanding tax debt.

Note that the lien is created as a matter of law; if the above facts one through three are true, there is a tax lien created against you (the taxpayer) in favor of the United States government.  The lien creation does not require any court involvement or any further actions by you, the IRS or anyone else.

INTERVIEWER: Leiliane Godeiro, Litigation Legal Assistant

Interviewee Comment:  Attorney what a IRS tax lien is now absolutely clear to me now!

QUESTION 2: Now that the IRS has a tax lien against the taxpayer, what now?

ATTORNEY ANSWER – QUESTION 2

Well it means that the IRS tax lien attaches to all of the delinquent taxpayer’s real and personal property regardless of where it is located. Now this IRS tax lien attaches to the delinquent taxpayers property that is in existence on the date of the lien as well as any property in the future that the taxpayer has a legal interest in directly on indirectly. For example, putting property in a trust is ineffective in defeating an IRS lien because the lien attaches to all property that the delinquent taxpayer has any beneficiary interest in as well as any real and personal property acquired during the existence of the lien that the taxpayer has legal title.  The IRS tax lien is not defeated at death of the delinquent taxpayer either because the lien attaches to the decedent’s property both real property and personal property owned by the delinquent taxpayer.

The legal term “attaches” simply means that the IRS lien by law connects to the taxpayers property like glue to two pieces of paper; they are glued together and you cannot separate the two.

And Leliane, these are not all the ramifications for the delinquent taxpayer; there are potentially broad family and financial consequences as well resulting from the IRS tax lien.

INTERVIEWER: Leiliane Godeiro, Litigation Legal Assistant

QUESTION 3: Attorney, what are some of those other ramifications of have an IRS tax lien?

ATTORNEY ANSWER – QUESTION 3

Okay; the ramifications are very expansive. The two pieces of paper glued together tend to tell the story regarding the reach and strength of a IRS lien. Take for example these ramifications or effects of the tax lien on the delinquent taxpayer:

Credit – most people from time to time want to access a credit instrument to buy real estate, buy a car, investment in equipment, and all other kinds of activities that require money and the delinquent taxpayer cannot pay for in full with cash;

Employment – most people from time to time want to work or be employed to earn a living for themselves and their families. Employers may not want to hire someone who, perhaps, cannot handle their financial affairs in responsible way;

Family relations– most people from time to time want to be in a steady, stable and supportive family. Family members and potential family members could be reluctant to enter into or maintain relations under the stressful situation of dealing with bill collectors and the threat of financial ruin;

Responsible leadership positions– in their church, in their community, in their local, state and federal government. Some people will see the delinquent taxpayer as possibly irresponsible and dishonest.

Travel Restrictions— when a delinquent taxpayer owes more than $50,000, the IRS has the authority in U.S. tax law to refer the delinquent taxpayer to the U.S. Department of State for the purpose of restricting their U.S. passport or revoking it all together. This would not impact domestic travel; but, it most certainly will hinder travel to most international destinations which require valid passports to travel into the country.

INTERVIEWER: Leiliane Godeiro, Litigation Legal Assistant

Interviewee’s Comment: I can see how all those negative consequences to occur when a taxpayer is under an IRS tax lien.

QUESTION 4: Attorney is there any possible way to legally get rid of an IRS tax lien?

ATTORNEY ANSWER – QUESTION 4

  • Yes, indeed. There are several possible ways to get rid of an IRS lien:
  • First of all you need to test the validity of the lien to begin with; and
  • Assuming the lien is valid, consider getting rid of the lien by

1.Borrowing the money or earning the money to pay the tax debt in full.  You need to first check with the IRS Lien Operations to get the lien pay off balance.  Now this balance likely to be higher than any recent correspondence that you might have received from the IRS or any annual statements that you might have received from them;

2.Second, you can send an official request to the IRS to release or discharge the lien on certain pieces of property, to say, facilitate a real estate sells transaction.  This lien discharge procedure typically agreed to by the IRS to collect part or all of the outstanding debt from the real property transfer or sale.  The IRS tax is typically paid out of the escrow from the real property transaction;

3.Third, you can request that the IRS to withdraw the lien when the ten year statute of collection has expired;

4.Fourth, you can in some circumstances seek a release of the lien upon agreeing to an installment agreement with the IRS for monthly payments of the outstanding tax debt.

INTERVIEWER WRAP-UP: Leiliane Godeiro, Litigation Legal Assistant

Attorney, thank you for being here today with us, this information about dealing with an IRS lien. Hopefully our audience finds it informative and helps them to know their rights as taxpayers; know how to protect their rights in the unfortunate event that they or their business has an IRS tax lien; and hopefully our audience knows now how to preserve their legal rights under the federal tax code if they are unfortunately have a tax lien on their attached to their real and personal property.

Our listeners who want to hear more podcasts like this one should subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify or where ever you listen to your podcast. Everybody take care! And come back in about two weeks, for more taxation, contracts, litigation and immigration Legal Thoughts from Coleman Jackson, Professional Corporation, 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 CLOSING REMARKS

This is the end of “LEGAL THOUGHTS” for now.

Thank you for giving us your valuable time this morning and listening to our law firm’s Legal Thought Podcast. This has been the first episode in our new podcast series entitled dealing with the IRS. Hope you enjoyed Episode One: “ Dealing with an IRS Lien”.

If you want to see or hear more taxation, contracts, litigation, and immigration LEGAL THOUGHTS from Coleman Jackson, Professional Corporation. Subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify, or wherever you listen to your podcast.

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.

Episode 1: Dealing with IRS Penalties

Legal Thought’s – Episode 1 of Dealing with IRS Penalties

Coleman Jackson, P.C. | Transcript of Legal Thoughts
Published July 17, 2023

 

Attorney introduction: Welcome to Legal 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.

In addition to myself, we have Leiliane Godeiro – Litigation Legal Assistant, and our administration staff Ernesto Munoz and Michelle Gutierrez.

On today’s “Legal Thoughts” podcast, our Litigation Legal Assistant, Leiliane Godeiro will be interviewing me in our federal tax series entitled, “ Dealing with the IRS”. In todays Legal Thoughts podcast the attorney will be talking about IRS penalties and the taxpayers’ options in dealing with them. This is Episode 1: “Dealing with IRS Penalties”.

INTERVIEWER: Leiliane Godeiro, Litigation Legal Assistant

Hi everyone, my name is Leiliane Godeiro and I am a Litigation Legal Assistant at the tax, litigation, and immigration law firm of Coleman Jackson, Professional Corporation. Our law firm is located at 6060 North Central Expressway, Suite 620, right here in Dallas, Texas.

Good Morning Attorney; thank you for being here with me today as I interview you in our brand new federal tax series, “Dealing with the IRS”.

In this first episode in this new Legal Thoughts Podcast series,  our topic is “Dealing with IRS Penalties”.

Attorney, let’s get started.

Question 1: Why does the IRS charge penalties?

Attorney Answer – Question 1:

Leiliane; the federal tax code which is codified in 26 United States Code gives the Department of the United States Treasury the authority and mandate to administer and enforce the countries federal tax laws. The agency within the Department of United States Treasury with specific responsibility to maintain the integrity of the federal tax system and ensure compliance with federal tax laws and consistent treatment of taxpayers under the tax code is the Internal Revenue Service, (the, IRS).

So the broad answer to your question as to why the IRS imposes penalties for violations or noncompliance with the Internal Revenue Code is that the IRS is carrying out its function to protect the integrity of the federal tax system and ensure voluntary compliance with the federal tax laws. These IRS penalties are imposed on violators of the federal tax laws..

INTERVIEWER: Leiliane Godeiro, Litigation Legal Assistant

Interviewee Comment:  Oh, I see.

QUESTION 2: What kind of penalties does the IRS impose for violation of the Internal Revenue Code?

ATTORNEY ANSWER – QUESTION 2:

That question is broad; for sure, because the IRS imposes penalties for all kinds of violations of the Internal Revenue Code. Let me just mention a few broad areas and behaviors that could trigger IRS penalties:

1.Filing related penalties can be imposed by the IRS when a taxpayer has a duty to file a tax return and files it late or not at all.  These filing related penalties can be imposed by the IRS on all kinds or taxpayers for all manner of filing violations.

2.Accuracy related penalties ranges from taxpayers’ negligent mistakes and errors,  to their reckless and frivolous tax positions all the way to willful understatement of assets, overvaluations of assets, over and under statement of liabilities and erroneous equity position valuations.  These accuracy related penalties can be assessed against individuals, businesses, trusts, estates, and other entities.

3.Preparer liability related penalties are assessed by the IRS on professional tax return preparers  for failure to  comply with various due diligence requirements, or on return preparers who advise their tax clients to take frivolous tax positions, or reckless positions or tax positions on their returns that are simply not unfounded in law tax or facts.

The story that I am attempting to tell here is that there are all kinds of reasons and all kinds of individuals, businesses, entities who might be assessed IRS penalties for all kinds of tax violations.  Also their tax preparers likewise are subject to certain types of IRS penalties.  The IRS penalties are assessed to encourage compliance with federal tax laws.  Human beings are curious and ingenious in coming up with new ways and even schemes to avoid what they don’t want to do.  Probably not too many people like paying taxes… so penalties are assessed to help the curious, ingenious and schemer alike to comply with federal law.

INTERVIEWER: Leiliane Godeiro, Litigation Legal Assistant

QUESTION 3: Attorney, what is the amount of money we are talking about in terms of IRS penalties?

Attorney Answer – Question 3:

IRS penalties can vary depending upon the type of tax violation. These penalties can be very substantial and they often continue to run until the underlying tax violation has been resolved. So that is the general answer to the question you asked.  Violators simply need to know that tax penalties in some instances can exceed the amount of the tax liability owed to begin with.

But let me deal with your question more specifically by naming a few IRS penalty rates:

1.Filing-Related Penalties Rates range all over the place depending upon the type of tax return involved; on your typical return, such as, the Form 1040, Form 1120, and Form 1065 the failure to file penalty begins at 20% of the net-amount due on the date the return was due not including any extensions of filing

2.Accuracy-Related Penalty Rates ranges from 5% to 20% based on the net-tax amount on the return due date not including any extensions of filing.  The quantum of the penalty is determined numerous factors that I am not going to go into right now.  In some instances, such as substantial valuation overstatements the penalty is 30% of the tax that should have been paid had the correct valuation or basis been used to begin with.  I am intentionally leaving out the specific Internal Revenue Code sections because it would be really getting into the weeds of federal tax law; and most of our podcast audience are not tax practitioners.  We don’t want to unnecessarily bombard them with tax law.  Just know, tax law is complex.

3.Information Reporting Penalties are imposed on employers for various violations for information reporting requirements in the tax code involving Form W-2, Form 1099, and so forth and can range from $50 per return if corrected within 30 days of the due date or $250 per return if its not corrected in 30 days.  Employers should know that information return penalties hand be brutal.

4.Penalties imposed on tax return preparers can range from $250 per return on returns taking unsustainable legal positions to the penalty regime designed to encourage tax return preparers to perform proper due diligence before taking certain tax positions, such as, earned income credit, head of household, and like tax positions.  The Code has imposed more-and-more due diligence requirements on return preparers over the years designed to encourage preparers to know the taxpayers for whom they prepare returns.

This is just the surface.  Like I said earlier I do not want to overwhelm our lay podcast audience by going too deep into the tax weeds.

INTERVIEWER: Leiliane Godeiro, Litigation Legal Assistant

Question 4: How long does the IRS have to charge a taxpayer these penalties you’ve been talking about Attorney?

Attorney Answer – Question 4:

Okay, Let me see whether I can keep this simple and straight forward:

1.If a taxpayer has a legal obligation under the Internal Revenue Code to file a tax return for a particular tax period but never filed the return, the IRS has forever to charge any applicable tax penalties, such as, failure to file penalties, accuracy penalties and any other penalties that can be lawfully charged based on the facts and circumstances.  Also the IRS has forever to audit the return and make tax adjustments and assessments.  This is so because the ‘three year statute of assessment’ never begins to run until the tax return is filed with the IRS.

2.If a taxpayer has a duty under the Internal Revenue Code to file a tax return and does file the return on or before the returns due date, the IRS has three years after the return was filed or its due date to assess any of the penalties that I previously mentioned.

3.Now let’s say the tax return was filed late.  With respect to late returns the IRS can assess the penalties beginning one day after the return is actually filed.

4.Keep in mind certain things that the taxpayer does and does not do can impact these assessment dates; such as, filing of an amended return and agreeing with an IRS representative to extend the statute of limitations for assessing penalties, interest and additional tax.  IRS examination of returns within this statute of limitation period can also impact the assessment of penalties, interest and tax.

INTERVIEWER: Leiliane Godeiro, Litigation Legal Assistant

Interviewee Comment: Attorney, I have one final question regarding this very interest topic: dealing with IRS penalties.

Question 5: What can a taxpayer do to minimize or get rid of IRS penalties?

Attorney Answer – Question 5:

If the penalty is resulting from an IRS audit examination, the taxpayer can ask for a hearing with the field examiner’s supervisor and if that fails to resolve the issues, the taxpayer can seek an audit redetermination where the penalty can be addressed or the taxpayer can seek redress in the IRS Independent Office of Appeals.

Taxpayers can seek penalty relief from an IRS penalty assessment by filing a Penalty Abatement or Refund Request with the field office where the return was filed and go to the IRS Independent Office of Appeals in the event the taxpayer is still unsatisfied with the results.

The taxpayer also have the right to file a petition with the United States Tax Court. It is very important that the tax court petition be timely filed. The taxpayer has 90 days from receipt of the IRS additional tax assessment, penalties and interest to file a complaint with the U.S. Tax Court without having to first pay the tax assessment.

I have summarized briefly the taxpayers options. It is more complex and taxpayers with these types of additional tax, penalty and interest assessments should contact legal counsel immediately upon receipt of any correspondence from the IRS or IRS examinations. For to protect and preserve your rights under the Internal Revenue Code, taxpayers must know their legal rights.

In all of the remedies that might be available to the taxpayer in penalty relief cases; the taxpayer must have acted reasonably and have ‘reasonable cause’ defense. Evidence must be gathered and marshaled to make reasonable cause defense arguments. Relief from IRS additional taxes resulting from examination, penalty and interest assessments cannot be based on thin-air, or groundless arguments; but, based in federal tax law and facts.

INTERVIEWER Wrap-up: Leiliane Godeiro, Litigation Legal Assistant

Attorney, thank you for being here today with us, this information about dealing with the IRS penalty. Hopefully our audience finds it informative and helps them to know their rights as taxpayers; know how to protect their rights in the unfortunate event that they are being examined by the IRS; and hopefully our audience knows now how to preserve their legal rights under the federal tax code if they are unfortunately hit with a IRS tax penalty.

Our listeners who want to hear more podcasts like this one should subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify or where ever you listen to your podcast. Everybody take care! And come back in about two weeks, for more taxation, contracts, litigation and immigration Legal Thoughts from Coleman Jackson, Professional Corporation, 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 Conclusion:

This is the end of “LEGAL THOUGHTS” for now.

Thank you for giving us your valuable time this afternoon and listening to our law firm’s Legal Thoughts Podcast. This has been the first episode in our new podcast series entitled dealing with the IRS. Hope you enjoyed Episode One: “ Dealing with IRS Penalties”.

If you want to see or hear more taxation, contracts, litigation, and immigration LEGAL THOUGHTS from Coleman Jackson, Professional Corporation. Subscribe to our Legal Thoughts Podcast on Apple Podcast, Google Podcast, Spotify, or wherever you listen to your podcast.

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.

The Worker: Employee or Independent Contractor?

The Worker:  Employee or Independent Contractor?

Why does it matter legally how workers are classified?

By Coleman Jackson, Attorney, and CPA.

Date: June 14, 2023.

Are your workers employees or independent contractors?    Why does it matter legally how workers are classified?

How should you make the determination as to whether a worker is classified as an employee or as an independent contractor?

How does the Internal Revenue Service make the determination?  How does the Texas Workforce make the determination for employment tax purposes?

Typically, when Internal Revenue Service auditors examine a business for the purpose of determining worker classification, the Service will generally follow the United States Supreme Court’s 1947 decision in a case called, United States vs. Silk.

In the Silk case, the United States Supreme Court said that whether a worker is properly classified as an employee or independent contractor turns on all the facts and circumstances. The Court delineated 20 factors, which if a majority of the factors can be answered yes, then the Internal Revenue Service will more likely than not classify the worker as an employee. These 20 factors are as follows:

  1. Is the worker required to comply with instructions about when, where, and how the work is to be done?
  2. Is the worker provided training that would enable them to perform the job in a particular way?
  3. Must the worker perform the services personally?
  4. Is there a continuing relationship between the worker and the entity that hired the worker?
  5. Are the services provided by the worker an integral part of the business’ operations?
  6. Does the entity hire, supervise or pay assistants to help the worker on the job?
  7. Does the recipient of the worker’s services set the work schedules?
  8. Is the worker required to devote his or her full time to the person for whom he or she performs services?
  9. Are the services performed at the place of business of the entity or at specific places designated by the business?
  10. Does the recipient of the services direct the sequence in which the work must be done?
  11. Is the method of payment hourly, weekly, or monthly as opposed to commission or by the job?
  12. Are business and/or traveling expenses reimbursed by the business to the worker?
  13. Are regular oral or written reports required to be submitted by the worker?
  14. Does the company furnish computers, work tools, and supplies used by the worker?
  15. Has the worker failed to invest in equipment or facilities used to provide services?
  16. Does the arrangement put the worker in the position of realizing either a loss or profit on the work?
  17. Does the worker perform services exclusively for the entity rather than working for various other entities at the same time?
  18. Does the worker make the worker’s services available to the general public?
  19. Is the worker subject to dismissal for reasons other than nonperformance of contract specifications?
  20. Can the worker terminate the relationship without incurring liability for failure to complete the assigned job?

 Why does it matter how a worker is classified?

  1. The cost of misclassification of workers can be tremendous.
  2. First and foremost, your employees could be erroneously carrying the burden of self-employment taxes.
  3. Misclassification of your workers means that you (the employer) are not paying your fair share of taxes and that may subject you to back taxes, interest, and penalties. The Service wants the taxes to be paid by the proper party.  Noncompliant entities could be eligible for certain safe-harbor provisions of the Internal Revenue Code.
  4.  There are also certain State of Texas consequences for failing to properly classify workers.  Therefore, the proper worker classification is a federal and state tax law issue.  There could be civil and criminal consequences for failing to properly classify workers in the State of Texas.
  5.  It is important that immigrants pay their fair share of taxes.  It is also fair for immigrants to be properly classified as employees or independent contractors depending upon all the facts and circumstances.

 What about the Texas Work Force Commission?

The Texas Labor Code defines the employee and employer relationship very similar to how this relationship is defined in federal labor law and tax law.  The Texas Workforce Commission, (TWC) is tasked with the duties of enforcing the Texas Labor Code.  Misclassification of workers is typically investigated after the commission receives a complaint or when TWC audit examinations uncover evidence that an establishment has misclassified workers as independent contractors when in reality the workers are employees.  Misclassification of workers has State law and Federal law consequences.  The Internal Revenue Service and Texas Workforce Commission can work together in enforcing labor laws as it relates to tax violations.

Why Risk Being Caught – Act Now!

If you are a worker and don’t know how you should be classified, you should contact a tax attorney to discuss all the facts and circumstances of your particular situation because all the facts and circumstances matter in determining whether a worker is properly classified.

If you are an employer and are in doubt as to whether you have properly classified your workforce you should review all of the facts and circumstances with competent tax counsel today since long stretches of time could elapse before you are audited by TWC or the IRS.  You see the problem is that both the federal and state government may be short-changed if the taxes are not being properly and timely reported.  In 2023 the chances of getting caught for misclassification of workers is higher than in years past because the IRS has been given a lot more money to update its systems, go after tax cheats, and to ensure tax compliance and integrity of the federal tax system.

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 your business.

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

 

THE IMPORTANCE OF ESTATE PLANNING & ASSET PROTECTION

By:  Coleman Jackson, Attorney & Certified Public Accountant

May 1, 2023

So many Americans died during the Covid-19 Pandemic!  Many families learned during this period of hardship and lost that estate planning and asset protection is not merely for the powerful and well-to-do but is for everyone.  You see, we are not born to stay here and everyone need to plan their exit most importantly spiritually but also temporally.  We are all passing through.  We are all fellow travelers on this journey towards life.  We form relations; we impact other’s lives for the good or bad; we amass property and other things during this journey.  Estate planning embodies our goals and objectives as to how we desire to protect our love ones and pass our personal legacy and property and things to our love ones, charities and whoever else we choose.  Estate Planning allows us to choose when beneficiaries inherit or receive our wealth.  Estate planning allows us to plan for incapacities that might come our way.  Estate Planning and Asset Protection is very important. It is the responsible thing to do!

Many Americans learned during Covid-19 that they or their love ones failed to properly plan for being incapacitated for long-periods of time or their sudden deaths.  Many Estate Planning, Tax and Asset Protection Lawyers have seen an uptick of families and individuals with these type matters on their heart and in their minds these days.  They are determined not to make the mistakes of their elders in failing to plan for their incapacities and demise. I think the public needs to know about asset protection and estate planning.

That is why I am writing this blog on estate planning and asset protection today.  It will be published and free of charge to anyone who goes to our law firm’s website www.cjacksonlaw.com and click on our blog page.  Incapacity, death and taxes impacts all of us one way or another eventually regardless of our economic station in life, or our cultural background or any other particular as it relates to us.

What is Estate Planning and Asset Protection:

  • Definitions: Estate Planning– Proper estate planning allows you to plan for yourself and your loved ones (which include your family, your church and community) without giving up control of your affairs. Your estate plan should allow for the possibility of your own disability. It should give what you own to whom you want, when you want, and the way you want at the least amount of costs.

Estate Planning is so important that you cannot afford not to do it and when you do it you cannot afford not to hire competent legal representation.  Estate Planning and Business Structuring are state specific which means that state law impacts your estate plan.  That means that if you are a resident of Texas; you should strongly consider hiring a lawyer licensed in Texas.  Federal tax law is implicated so you should consider hiring a lawyer skilled in the relevant sections of the Internal Revenue Code.

Some general things you could possibly talk to your estate planning lawyer about during your initial consultation:

There are five common ways to pass assets to your intended loved ones –

  • Wills
  • Trusts
  • Beneficiary designations (e.g., life insurance, pensions, IRAs, etc.)
  • Joint property arrangements
  • Life estate deeds
  • Non-probate Assets
  • Joint tenancy with right of survivorship
  • Payable on death accounts
  • Joint Accounts
  • Life Insurance

 

  • Tax Issues– The specter of taxes is always there (so, you cannot ignore the tax ramifications of dying. Some of the basic tax considerations that you need to discuss with your estate planning attorney about during your initial consultation are as follows:
  1. Federal Unified Tax Credit
  2. Estate Taxes
  3. Gifts and gift tax
  4. Community Property vs Separate Property—Texas is a community property state and the impact of that reality on estate planning cannot be underestimated.
  5. Property Taxes—Texas property taxes are some of the highest in the nation. Many elderly people fall behind on their property taxes and lose their property due to delinquent taxes. And often time those who inherit property in Texas is unaware of these delinquent tax problems until they are faced with foreclosure procedures. Due diligence is required to investigate the various ways property of an estate is encumbered.

Some more things to talk about during your initial consultation with your estate and asset protection lawyer.  It is very helpful if your estate planning and asset protection lawyer is schooled in federal tax issues because federal taxes are always around potentially impacting the value of your estate.  You should consider asking about—

  1. Importance of Having a Will
  2. Basic Types of Wills
  3. Community property laws in Texas
  4. Will and testamentary trust
  5. Special provisions and things unique to you
  6. Executors
  7. Execution of Wills
  8. Revocation of Wills
  9. Effect of Divorce on Wills and Trusts and Community Property
  10. Effect and Implication of Immigration Status, the United States of America is a land of immigrants and many immigrants have family, business interest and property in their native countries; therefore, effective estate planning and asset protection must consider these facts and circumstances. Pre-immigration planning in some cases is critical. Immigration status cannot be ignored in estate planning and tax planning.

What else might you consider bring up during your initial consultation with your estate planning and asset protection lawyer.

  • Ancillary Documents: So, what are these all about? Dying is not all you have to think about.  During Covid-19, folks were in the hospital for months-and-months-and months.  Who was to handle their household affairs?  Who was to handle their business affairs?  Who was to take care of their minor children?  Incapacity issues are also part of effective estate planning and asset protection.   Estate planning is about planning for your being unable to care for yourself, your minor children and your financial affairs.  Some tools estate planning lawyers use in consideration of your incapacity to act for yourself are as follows:
  1. Durable Powers
  2. General Powers
  3. Special Powers
  4. Revocation of POAs
  5. Health Care POAs
  6. Directive to Physicians
  7. Trusts
  8. Creation of trusts
  9. Purpose, Types and Taxes with respect to Trusts
  10. Community Property Agreement and Pour-over Will
  11. Crummey Powers
  12. Termination of the Trusts
  13. Marital and Bypass Trusts
  14. When Trust are not advisable
  15. How Trusts work
  16. Living Trust
  17. QTIP Trusts
  18. Charitable Remainder Trusts
  • Guardianships
  • What about Long-Term Care? (Elder Care, such as Social Security, Nursing Homes,

SSI, Medicare, Medicaid and Hospice).  These matters too are addressed in comprehensive estate and asset protection.

CONCLUSION:  ESTATE PLANNING AND ASSET PROTECTION IS NOT ABOUT THE DOCUMENTS

Estate planning is not about the documents!  Estate Planning is all about your goals and objectives in passing your legacy, values and property to who you want and how you want and when you want with the least amount of spillage such as for taxes, court costs and other expenses as possible.  It is dangerous to pull documents off the internet or obtain them from friends, relatives or others because law is complicated and what you find on the internet or elsewhere might not accomplish your goals and objectives.  A counseling attorney is critical for effective estate planning, tax planning and asset protection.  These plans need to be within the bounds of all applicable international, federal, state and local laws and ethical principles.  What are your goals and objectives in such matters as these?

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

THE IMPORTANCE OF ESTATE PLANNING & ASSET PROTECTION

By:  Coleman Jackson, Attorney & Certified Public Accountant

April 26, 2023

Giving in the United States creates tax obligations on the giver

So many Americans died during the Covid-19 Pandemic!  Many families learned during this period of hardship and lost that estate planning and asset protection is not merely for the powerful and well-to-do but is for everyone.  You see, we are not born to stay here and everyone need to plan their exit most importantly spiritually but also temporally.  We are all passing through.  We are all fellow travelers on this journey towards life.  We form relations; we impact other’s lives for the good or bad; we amass property and other things during this journey.  Estate planning embodies our goals and objectives as to how we desire to protect our love ones and pass our personal legacy and property and things to our love ones, charities and whoever else we choose.  Estate Planning allows us to choose when beneficiaries inherit or receive our wealth.  Estate planning allows us to plan for incapacities that might come our way.  Estate Planning and Asset Protection is very important. It is the responsible thing to do!

 

Many Americans learned during Covid-19 that they or their love ones failed to properly plan for being incapacitated for long-periods of time or their sudden deaths.  Many Estate Planning, Tax and Asset Protection Lawyers have seen an uptick of families and individuals with these type matters on their heart and in their minds these days.  They are determined not to make the mistakes of their elders in failing to plan for their incapacities and demise. I think the public needs to know about asset protection and estate planning.

 

That is why I am writing this blog on estate planning and asset protection today.  It will be published and free of charge to anyone who goes to our law firm’s website www.cjacksonlaw.com and click on our blog page.  Incapacity, death and taxes impacts all of us one way or another eventually regardless of our economic station in life, or our cultural background or any other particular as it relates to us.

 

 

What is Estate Planning and Asset Protection:

 

  • Definitions: Estate Planning– Proper estate planning allows you to plan for yourself and your loved ones (which include your family, your church and community) without giving up control of your affairs. Your estate plan should allow for the possibility of your own disability. It should give what you own to whom you want, when you want, and the way you want at the least amount of costs.

 

Estate Planning is so important that you cannot afford not to do it and when you do it you cannot afford not to hire competent legal representation.  Estate Planning and Business Structuring are state specific which means that state law impacts your estate plan.  That means that if you are a resident of Texas; you should strongly consider hiring a lawyer licensed in Texas.  Federal tax law is implicated so you should consider hiring a lawyer skilled in the relevant sections of the Internal Revenue Code.

Some general things you could possibly talk to your estate planning lawyer about during your initial consultation:

There are five common ways to pass assets to your intended loved ones –

  • Wills
  • Trusts
  • Beneficiary designations (e.g., life insurance, pensions, IRAs, etc.)
  • Joint property arrangements
  • Life estate deeds
  • Non-probate Assets
  • Joint tenancy with right of survivorship
  • Payable on death accounts
  • Joint Accounts
  • Life Insurance
  • Tax Issues– The specter of taxes is always there (so, you cannot ignore the tax ramifications of dying. Some of the basic tax considerations that you need to discuss with your estate planning attorney about during your initial consultation are as follows:
  1. Federal Unified Tax Credit
  2. Estate Taxes
  3. Gifts and gift tax
  4. Community Property vs Separate Property—Texas is a community property state and the impact of that reality on estate planning cannot be underestimated.
  5. Property Taxes—Texas property taxes are some of the highest in the nation. Many elderly people fall behind on their property taxes and lose their property due to delinquent taxes. And often time those who inherit property in Texas is unaware of these delinquent tax problems until they are faced with foreclosure procedures. Due diligence is required to investigate the various ways property of an estate is encumbered.

 

Some more things to talk about during your initial consultation with your estate and asset protection lawyer.  It is very helpful if your estate planning and asset protection lawyer is schooled in federal tax issues because federal taxes are always around potentially impacting the value of your estate.  You should consider asking about—

 

  1. Importance of Having a Will
  2. Basic Types of Wills
  3. Community property laws in Texas
  4. Will and testamentary trust
  5. Special provisions and things unique to you
  6. Executors
  7. Execution of Wills
  8. Revocation of Wills
  9. Effect of Divorce on Wills and Trusts and Community Property
  10. Effect and Implication of Immigration Status, the United States of America is a land of immigrants and many immigrants have family, business interest and property in their native countries; therefore, effective estate planning and asset protection must consider these facts and circumstances. Pre-immigration planning in some cases is critical. Immigration status cannot be ignored in estate planning and tax planning.

 

What else might you consider bring up during your initial consultation with your estate planning and asset protection lawyer.

 

  • Ancillary Documents: So, what are these all about? Dying is not all you have to think about.  During Covid-19, folks were in the hospital for months-and-months-and months.  Who was to handle their household affairs: Who was to handle their business affairs?  Who was to take care of their minor children?  Incapacity issues are also part of effective estate planning and asset protection.   Estate planning is about planning for your being unable to care for yourself, your minor children and your financial affairs.  Some tools estate planning lawyers use in consideration of your incapacity to act for yourself are as follows:

 

  1. Durable Powers
  2. General Powers
  3. Special Powers
  4. Revocation of POAs
  5. Health Care POAs
  6. Directive to Physicians
  • Trusts
  1. Creation of a Trusts
  2. Purpose, Types and Taxes with respect to Trusts
  3. Community Property Agreement and Pour-over Will
  4. Crummey Powers
  5. Termination of the Trust
  6. Marital and Bypass Trusts
  7. When Trust are not advisable
  8. How Trusts work
  9. Living Trust
  10. QTIP Trust
  11. Charitable Remainder Trusts
  • Guardianships
  • What about Long-Term Care? (Elder Care, such as Social Security, Nursing Homes,

SSI, Medicare, Medicaid and Hospice).  These matters too are addressed in comprehensive estate and asset protection.

 

 

CONCLUSION:  ESTATE PLANNING AND ASSET PROTECTION IS NOT ABOUT THE DOCUMENTS

Estate planning is not about the documents!  Estate Planning is all about your goals and objectives in passing your legacy, values and property to who you want and how you want and when you want with the least about of spillage such as for taxes, court costs and other expenses as possible.  It is dangerous to pull documents off the internet or obtain them from friends, relatives or others because law is complicated and what you find on the internet or elsewhere might not accomplish your goals and objectives.  A counseling attorney is critical for effective estate planning, tax planning and asset protection.  These plans need to be within the bounds of all applicable international, federal, state and local laws and ethical principles.  What are your goals and objectives in such matters as these?

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