Category Archives: Taxation

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:

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 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

Here’s Why People Filing Taxes Should Be Careful When Selecting A Professional Tax Return Preparer | LEGAL THOUGHTS

Coleman Jackson, P.C. | Transcript of Legal Thoughts Podcast
Published March 10, 2021.

Here’s Why People Filing Taxes Should Be Careful When Selecting A Professional Tax Return Preparer

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 ““Here’s why people filing taxes should be careful when selecting a professional tax return preparer.” 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 Tax 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: “Here’s why people filing taxes should be careful when selecting a professional tax return preparer.”
  • 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: Here’s why people filing taxes should be careful when selecting a professional tax return preparer.”

Interviewer:  Mayra Torres, Public Relations Associate

  • Good morning 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 today we are discussing a very important tax topic because filing taxes is on folks minds these days. Many people may be filing taxes for the first time this year because of the recovery rebate credit issues involving their economic impact payments and other Covid-19 relief received during 2020.
  • In this Podcast, we will be discussing the safest, easiest and perhaps cheapest way folks can file their tax returns.

Question 1:

Attorney let’s start with the cheapest way folks can file their taxes for 2020!  What options exist for people who do not want to pay a professional tax return preparer?  I mean, can people file their tax returns for free?

Attorney Answers Question 1:

  • Good morning Mayra.
  • First people can always prepare and file their tax return themselves without hiring and paying anyone.
  • Second people can go to IRS.gov and select a number of brand-name tax software providers who will permit certain eligible taxpayers to use their software to prepare and electronically file their individual tax return for absolutely free. This particular free tax preparation option might be an excellent option for some taxpayers.  Typically, the software providers require people to meet certain income, age and state residency requirements.  The software vendors’ individual qualifying requirements can be found at IRS.gov. Most of the free vendors software is in English, but a few are in Spanish.  This free file option is certainly an option that taxpayers should explore.
  • Third people can use possibly find free tax preparer clients hosted by various accounting and legal societies throughout the community. Some churches and business and law schools also provide minimum fee tax advice and counsel.  People should contact the professional schools in their communities to inquire whether students in tax law training provide such services to the community.  When I attended SMU School of Law, I participated in their tax clinic that provided free or minimum fee tax controversy services by enrolled students under the supervision of the tax clinic professor.  People should make inquiries at professional societies, schools, and places of worship to see what’s available.
  • So to summarize; Mayra, as you can see there are a number of options available for people to get their tax returns prepared at little to no costs.

Interviewer:  Mayra Torres, Public Relations Associate

That is an excellent summary of the free or low-cost tax return preparation and filing options that might be available to people this year:

  1. people can prepare and file their returns without using anyone to help them;
  2. People can go to IRS.gov and select a brand-named software provider to prepare and file their return if they meet the provider’s qualification requirements, and
  3. People can search for a free or low-cost professional tax return preparer at local places of worship, or professional accounting or law societies or local law school tax clinics and accounting schools.

Question 2:

Attorney, some people can’t qualify for one of these free or low-cost tax preparation services. Some people just think taxes are very complex; they can’t prepare these complicated tax returns themselves, and they just want to hire someone to prepare the return and file it for them.  What characteristics and qualifications should people look for when hiring a tax return preparer?

Attorney Answers Question 2:

  • Mayra, that is a very good question since people are responsible for the accuracy of their tax return regardless of whether they prepare and file it themselves or hire someone else to prepare and file their return.
  • These are some of the things that people might should consider when selecting a tax return preparer:
    1. Indicial of educational training in tax law and tax accounting. This might be evidenced by a degree from college in taxes, accounting, law, finance, or some related business degree.  Return preparer might be qualified with only certificates but with increasing complexity of the tax issues involved, should cause taxpayers to exercise more exacting screening of a tax return preparer before they hire them to work on their return.
    2. Professional Tax Identification Number (or PTIN). The PTIN is an annual credentialing issued by the Department of Treasury to professionals authorized to practice before the Internal Revenue Service as paid tax return preparers. To obtain a PTIN, a tax professional must be an attorney in good standing with a State Bar Association, a licensed Certified Public Accountant in good standing with a state CPA licensing authority, an enrolled agent in good standing with the Internal Revenue Service, or a registered tax return preparer under the defunct IRS Registered Tax Return Preparer Program. Taxpayers should look for these types of credentialing when selecting a tax return preparer. In recent years, the annual PTIN fee has been suspended due to Court challenges regarding the IRS’ attempt to regulate tax practice.  The IRS’ stated goal when instituting the PTIN program was to improve the integrity and quality of the tax preparation industry.   Some tax professionals challenged this attempt in Court.  Nevertheless, PTIN credential could be a good metric for the public to use when selecting a tax return preparer.  The bottom line is this— when the professional does not have a current PTIN Card; It is possibly a bright red alert to the taxpayer that they could be taking unnecessary risk by hiring an unqualified tax return preparer.  Taxpayers are responsible and liable for the accuracy of their tax returns regardless of who prepares or files the return for them.
    3. Experience in tax return preparation is critical factor when selecting a tax return preparer. Tax law is constantly changing from year to year, and it is very important that the tax return professional maintains competencies in tax law on an annual basis.  The more experience that the tax return preparer has with the type of return involved the better.  For example, if you have foreign accounts, you should think long and hard before hiring any return preparer who has never worked with taxpayers with foreign accounts or offshore assets.  Over the years, our law firm has seen many taxpayers who have been greatly harmed by tax return preparers who failed to properly counsel and advise them with regards to proper tax accounting for offshore assets and accounts.
    4. So to summarize: taxpayers should look for relevant tax law and accounting education, IRS Tax Professional PTIN certificate and tax experience relevant to tax issues related to their particular situation when selecting a tax return preparer.
  • It is very important to make a wise selection choosing which tax return preparer to hire because taxpayers can be subject to civil penalties and even criminal exposure for inaccuracies and materially false statements and tax positions taken on their tax returns and in their claims for refunds.

Interviewer:  Mayra Torres, Public Relations Associate

  • Bright Red Alert! Before hiring anyone to do your tax return, look at the tax return professional’s educational background… like where did they go to school and where did they learn tax and accounting; look at whether they have a current IRS Tax Professional PTIN certification, and look at whether they have the right type of tax experience to prepare your tax return!
  • If any of these three things are missing; it’s a bright red alert folks! Attorney, thanks for answering my question so clearly concerning what characteristics people should look for when selecting a tax return preparer.
  • Did I get the bright red alerts right, Attorney?

Question 3:

Attorney, it sounds like taxpayers can get in very serious trouble on their taxes if they hire an unqualified, incompetent, or dishonest tax return preparer.

Is there any where a taxpayer can turn for help when they suspect that they have been harmed by their tax return preparer?

Attorney Answers Question 3:

  • The Internal Revenue Service has been given the authority by Congress to maintain the public’s confidence in the federal tax system. Under that authority the IRS maintains advisory committees who establish practices, procedures and policies of the oversight offices designed to enforce regulations governing those authorized to practice before the IRS.  The IRS is required under these regulations to maintain a list of individuals and companies who have been disbarred from practice before the IRS; list practitioners with monetary sanctions, and a list of practitioners who have otherwise been sanctioned by the IRS.
  • In addition to the IRS oversight that I have mentioned; professionals such as attorneys and certified public accountants are accountable to their respective professional licensing authorities in their states. These various professional licensing boards have specific complaint procedures where injured taxpayers can file an official complaint.
  • Finally, taxpayers harmed by tax return preparers can also turn to the courts for redress by filing a lawsuit for professional liability or other claim.
  • I should caution here that every tax position taking on a particular tax return may not rise to the level incompetence or malfeasance on the part of the tax return preparer. Judgment is an inherent part of being a tax professional.  That intangible characteristic of confidence and trust in your tax professional cannot be overstated.

Interviewer:  Mayra Torres, Public Relations Associate

Question 4:

What about the people that have an approved family-sponsorship petition outside of the United States?

Attorney Answers Question 4:

  • The Internal Revenue Code imposes an entire laundry list of civil penalties and criminal penalties on Tax Return Preparers who are incompetent or engage in disreputable conduct. The names and descriptions of these various penalties can be very informative as what goals the IRS is attempting to achieve in terms of protecting the public, protecting the public’s confidence in the tax system, and maintaining the overall integrity of the U.S. federal tax system.  So that I don’t overly complicate this for our none-tax professional listeners, I am going to leave out any references to the specific Internal Revenue Code Section or Treasury Regulation where these penalties are codified.  Most of our listeners probably don’t really care to know the actual tax code section and treasury regulation reference numbers for these penalties.
  • This is a list of some of the types of penalties that the IRS can impose on Tax Return Preparers. Taxpayers should just thing about the item on the list and look beyond what is right in front of them to what the IRS is trying to accomplish by imposing these penalties on incompetent preparers or those engaged in disreputable conduct:
    1. Civil Penalties imposed on tax return preparers for failure to meet due diligence requirements for determining eligibility for certain tax benefits, such as, child tax credit, head of household, and earned income credit. Often times, taxpayers take these tax positions in error or with bad advice from tax preparers.
    2. Penalties imposed on tax return preparers for failure to sign the return and penalties for failing to supply identifying numbers such as, PTIN etc. Again, often, returns prepared by paid tax preparers appear to be self-prepared.
    3. Various penalties imposed against tax preparers for giving false or misleading information to the Department of the Treasury or any of its officers, employees, or agents.
    4. Various penalties imposed against tax preparers for aiding, advising or abetting others in violating federal tax law by suggesting or aiding in an illegal plan to evade the proper application and administration of U.S. tax laws or payment of U.S. taxes.
  • Items three and four can result in civil negligence and civil accuracy related penalties; and willful or reckless violation of U.S. Tax laws could lead to criminal referrals and prosecution of the tax return preparer and the taxpayer.
  1. Penalties imposed on tax return preparer for failure to give the taxpayer a copy of their tax return.
  2. Penalties imposed on the tax return preparer for failure to maintain a copy of the prepared tax return.
  3. Penalties imposed on the tax return preparer for failure to maintain a record of who prepared the return.
  • Items five through seven is designed to create a contemporary record and to provide a chain of responsibility. Tax return preparer operations are subject to IRS examination and investigation.
  • These are only a few of the penalties that the IRS could impose on incompetent tax return preparers and those engaged in disreputable conduct.
  • Taxpayers must be careful when tax return preparers over promise, make claims of abilities to obtain certain refund amounts or tax results, or seek to negotiate taxpayer refund checks. Sometimes dishonest preparers claim that the taxpayer has companies, farms, and factories that the taxpayer themselves never knew they had.  Remember you are responsible for the numbers and data on your tax return and the IRS will look for you first to timely pay the correct amount of taxes.  Your tax return preparer may or may not ever be held accountable.  So, a word to the wise:  be careful when you select your tax return preparer.
  • All these penalty areas that I have mentioned in this podcast should help taxpayers to exercise wisdom and discretion when selecting a tax return preparer. Look for professionals with character and experience even though it might cost you more to have your taxes done.  It may cost more in the long run if you choose an incompetent tax preparer, or one engaged in disreputable acts.

Interviewer:  Mayra Torres, Public Relations Associate

  • Attorney, thanks for such a thorough response to my questions about characteristics, qualifications, and other things that people should consider when selecting a tax return preparer. Character and experience always matter!
  • That’s all the questions I have for now with respect to being wise and prudent when selecting a tax return preparer. It sounds like it’s very dangerous to select the wrong person or firm to prepare your tax return.

Attorney Comment:

  • Well, those were all excellent questions, Mayra. And I am glad we were able to discuss the importance of exercising wisdom and being prudent when selecting a tax return preparer.

Mayra Torres’s Concluding Remarks:

  • Attorneys thank you for this comprehensive and informative presentation on selecting a tax return preparer.
  • 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, 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 why people filing taxes should be careful when selecting a professional tax return preparer.
  • If you want to see or hear more taxation, 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.

Podcast – Update on Covid-19 Relief for Shuttered Venue Operators, Museum Operators, Motion Picture Theater Operators, and Talent Representatives | LEGAL THOUGHTS

Coleman Jackson, P.C. | Transcript of Legal Thoughts Podcast
Published February 3, 2021.

Update on Covid-19 Relief for Shuttered Venue Operators, Museum Operators, Motion Picture Theater Operators, and Talent Representatives

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, Tax Legal Assistant of Coleman Jackson, P.C.   The topic of discussion is “Update on Covid-19 Relief for Shuttered Venue Operators, Museum Operators, Motion Picture Theater Operators, and Talent Representatives” 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 Tax 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: “Update on Covid-19 Relief for Shuttered Venue Operators, Museum Operators, Motion Picture Theater Operators, and Talent Representatives.
  • 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 immigration legal assistant, Reyna Munoz will be asking the questions and I will be responding to her questions on this important tax topic: “Update on Covid-19 Relief for Shuttered Venue Operators, Museum Operators, Motion Picture Theater Operators, and Talent Representatives.”

Mayra Torres Introduces Herself to the Audience:

  • Good morning 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 we have published three prior podcasts where we discussed various aspects of economic Covid-19 relief offered to individuals and businesses in the Consolidated Appropriations Act, 2021. In Part One of Legal Thoughts Podcast several weeks ago, we spent most of our time talking about stimulus checks.  Then in Part Two, we spent the bulk of our time discussing tax relief in the Act for businesses, such as the Paycheck Protection Program.  And in Part Three that was published a couple of weeks ago, we discussed Discharge of Indebtedness and the Paycheck Protection Program.
  • In this Podcast, we will be discussing various aspects of the Shuttered Venue Operators Grant Program which became law on December 27, 2020.

Question 1:

  • Attorney let’s start right on the basics here! What is the Shuttered Venue Operators Grant Program?

Attorney: Coleman Jackson

ANSWER 1:

  • Good morning Mayra.
  • The Shuttered Venue Operators Grant Program is Section 324 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits and Venues Act signed into law on December 27, 2020 which is designed to give economic relief to hard-hit businesses in the entertaining industry.  It is the U.S. Congress response to the economic turmoil caused by Covid-19 on businesses, entities and organizations in the arts, cultures and entertaining sectors of our communities who have been hard-hit by the devastation of doing all the things scientist have told us to do as a community to contain or bend the curve of the spread of corona virus.  These entertaining venues were hard-hit by venue shutdowns and attendance restrictions throughout this global pandemic and National Health Emergency.
  • The Shuttered Venue Operators Grant Program is Title III, Section 324 of the Consolidated Appropriations Act, 2021.  We have produced and published several Podcast over the last few weeks where discuss various aspects of the Consolidated Appropriations Act, 2021.

Interviewer: Mayra Torres, Public Relations Associate

  • Yes, Attorney, we have published at least three podcasts in recent weeks discussing stimulus payments to individuals, paycheck protection program loans to small businesses, and PPP Loan Forgiveness procedures under the Consolidated Appropriations Act, 2021. Anyone wanting to listen to these prior Podcast can subscribe to our Podcast on Apple Podcast, Google Podcast, Spotify or wherever they listen to their podcast.
  • That is wonderful news about economic grant relief to performing arts venues, museums, and other cultural venues! That is indeed great news, Attorney!  We all have a major interest in seeing our favorite entertainers venues survive this dreadful pandemic and thrive.  What a joy it will be when we can all go out and safely have fun again.  It’s good that the U.S. Congress is sending economic Covid-19 relief to hard-hit businesses in the entertainment, arts and culture sector of the economy.  These businesses survival is critical for everyone’s wellbeing and happiness.  I mean, the arts and culture are very important to us all because arts and culture adds spice, quality, and enjoyment to life.

Question 2:

  • Attorney, what kinds of businesses and organizations are eligible to apply for a Shuttered Venue Operators Grant?

Attorney: Coleman Jackson

ANSWER 2:

  • Mayra, you are right about the need of society for survival of arts and culture venues during this pandemic.
  • The following types of individuals, entities, businesses, and organizations may be eligible to apply for a grant under the Small Business Administration’s Shuttered Venues Operators Program:
    1. Venue Operators;
    2. Event Promotors;
    3. Theatrical Producers;
    4. Live Performing Arts Operators;
    5. Museum Operators;
    6. Motion Picture Theaters Operators; and
    7. Talent Representatives
  • Let me note that the Economic Aid Act for Hard-Hit businesses adopts the term Small Business as defined in the Small Business Act. Hard-Hit business can apply to individuals, business entities and even governmental agencies, under certain circumstances under Section 324 of the Economic Aid Act to Hard-Hit Small Businesses, Nonprofits and Venues Act of December 27, 2020.

Interviewer: Mayra Torres, Public Relations Associate

  • So, movie theaters, promotors, venue operators, and live performing arts venues are among the types of businesses who may apply for a Shuttered Venue Grant under this grant program.
  • Did I get all that right, Attorney?

Question 3:

  • Attorney, can someone listening to our podcast today go out and start a business in the performing arts, movie theaters and entertaining promoter industry and apply for one of these Small Business Administration’s Hard-Hit Shuttered Venue Grants?

 Attorney: Coleman Jackson

ANSWER 3:

  • Mayra, your brief summary of eligible businesses or entities who may be eligible to apply for a grant under the program is right. Your list is not as comprehensive as the laundry list of potentially eligible entities that I listed; however.
  • As for your question about someone listening to this podcast and then going out and starting a business or organization to apply for a Economic Hard-Hit Venues Grant under this SBA Program; not so fast! The business must have been in operations as of February 29, 2020.  If a business started operations in 2020 for the first time, the business must have been fully operational on February 29, 2020.
  • Keep in mind the business will have to demonstrate to the satisfaction of the Small Business Administration that the business has suffered a revenue loss of 25% in 2020 from revenue in 2019 due to the corona virus pandemic. The SBA permits business not in existence in 2019 to use an alternative method to show the 25% decline in business.  In those instances, the SBA looks at the decline in gross revenue for the second, third and fourth quarters of 2020 and compares it with the businesses first quarter gross revenue for 2020.
  • So bottom line: Mayra the answer to your question is NO.  An individual cannot listen to this podcast today and go out and start a new business in the entertaining, promoter, arts venue arena in hopes of applying for a grant under the Economic Hard-Hit venues grant program.  Now whether such individual or business can purchase an existing business that potentially qualifies for the grant?  That could be something that could be considered.

Interviewer: Reyna Munoz, Tax Legal Assistant

QUESTION 4:

  • Attorney, we talked about the Paycheck Protection Program Loan a few weeks ago. Can a business apply for a PPP loan and a grant under the SBA shuttered grants program for small businesses, nonprofits, and shuttered venues?

Attorney: Coleman Jackson

ANSWER 4:

  • Well, that kind of sound like double dipping. But it depends upon when the business or entity received their Paycheck Protection Program Loan.  If the entity applied for and received their PPP loan before December 27, 2020, they can also apply for a Shuttered Venues Grant under the SBA Grant Program for shuttered nonprofits, small businesses, and venues.
  • However, in the event the business applied for and received their PPP loan after December 27, 2020, they are not eligible to apply for a SBA Shuttered Venues Grant. Double dipping is not allowed; however, that business who received a first draw PPP loan can apply and receive a second draw PPP loan under the Consolidated Appropriations Act, 2021.  We talk about the potential and procedures for a second draw loan in our previous podcast on this topic.

Interviewer: Mayra Torres, Public Relations Associate 

  • Attorney, thanks for such a thorough response to my questions about whether a business could apply for and receive both a paycheck protection program loan and an SBA grant under the Shuttered Venues Program. It sounds like your answer is no; unless the business applied for and received their PPP loan prior to December 27, 2020.

Question 5:

  • I was just wondering Attorney. Are grants under the Small Business Administration’s Shuttered Venue Operators Program, loans that must be paid back?  Are they tax free?

Attorney: Coleman Jackson

ANSWER 5:

  • Those are excellent questions, Mayra.
  • No grants under the Small Business Administration Program for shuttered non-profits, small businesses and venues are not loans. A grant does not have to be paid back by the recipient of the grant.
  • And yes, grants received by the business or organization under Title III, Section 324 of the Economic Aid to Hard-Hit Small Businesses, Non-profits and Venues Act are tax free. The grant is not included in the business’s gross income.
  • Section 278 (d) states, in part that “any grant made under section 324 of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act shall not be included in the gross income of the person that receives such grant”.
  • These and other specific tax rules established in the Act applies to all tax periods after the effective date of the Consolidated Appropriations Act, 2021 was December 27, 2020.

Interviewer: Mayra Torres, Public Relations Associate 

  • Attorney it is definitely good news to know that shuttered business operators do not have to pay federal taxes on grants received under this SBA shuttered venue operators grant program. That is relief when relief is needed from the devastation of this dreadful corona virus pandemic.

Question 6:

  • Attorney, how likely an auditor comes knock years from now seeking to examine the books and records of shuttered venue operator who receives one of these SBA shuttered venues grants.?

Attorney: Coleman Jackson

  • Another excellent and thoughtful question, Mayra.

ANSWER 6:

  • Businesses should consult with their trusted advisors in terms of applying with laws and regulations governing Shuttered Venues Act grants. Several federal agencies could be involved in administrating and conducting audit examinations of nonprofits, small businesses and shuttered venues operators who receives these Small Business Administration Shuttered Venues Grants.
  • Subsequent rules and regulations could come from the Small Business Administration, United States Treasury or other governmental agency establishing accountability and proper business accounting for grants received during this pandemic. Businesses should keep good books and records that properly reflect the expenditure of such shuttered venues grant funds for at least seven years.

Interviewer: Mayra Torres, Public Relations Associate 

  • Attorney thanks for such a detailed explanation of discharge of indebtedness and the Paycheck Protection Program.

Mayra Torres’s Concluding Remarks

  • Attorneys thank you this comprehensive and informative presentation on the SBA Shuttered Venue Operators Program.
  • I know we have not talked about everything concerning the Consolidated Appropriations Act, 2021. But these are my questions for now as it relates to the SBA Covid-19 Relief for the Shuttered Venues Operators.  Perhaps we can do another podcast covering other aspects of this topic as time permits and interest by our listeners is communicated to us through calls, emails or otherwise.
  • 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, 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 END OF “LEGAL THOUGHTS” FOR NOW

  • Thanks for giving us the opportunity to inform you about the “Consolidated Appropriations Act, 2021 as it relates to the Small Business Administration’s Grant Program for Shuttered non-profits, small businesses and venues”. We might do future blogs or podcast dealing with various other aspects of the Consolidated Appropriations Act, 2021 in the near future.
  • If you want to see or hear more taxation, 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.

Podcast – Update on Covid-19 Relief for Individuals and Businesses pt. 3 | LEGAL THOUGHTS

Coleman Jackson, P.C. | Transcript of Legal Thoughts Podcast
Published January 27, 2021.

Update on Covid-19 Relief for Individuals and Businesses

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, Tax Legal Assistant of Coleman Jackson, P.C.   The topic of discussion is “Update on Covid-19 Relief for Individuals and Businesses pt. 3” 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 Tax 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: “Update on Covid-19 Relief for Individuals and Businesses- Part 3.”
  • 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 immigration legal assistant, Reyna Munoz will be asking the questions and I will be responding to her questions on this important tax topic: “Update on Covid-19 Relief for Individuals and Businesses- Part 3.”

Reyna Munoz Introduces Herself to the Audience:

  • Good morning everyone. My name is Reyna Munoz and I am the immigration legal assistant at Coleman Jackson, P.C.  Coleman Jackson, P.C. is a taxation, litigation and immigration law firm based right here in Dallas, Texas.
  • Attorney we have published two prior podcast where we discussed various aspects of the tax relief offered to individuals and businesses in the Consolidated Appropriations Act, 2021. In Part One of Legal Thoughts Podcast  several weeks ago, we spent most of our time talking about stimulus checks.  Then in Part Two, we spent the bulk of our time discussing tax relief in the Act for businesses, such as the Paycheck Protection Program.  In this Part Three, we will be discussing Discharge of Indebtedness and the Paycheck Protection Program.

Question 1:

  • So, Attorney, let’s get started this morning with this question: Generally speaking, Attorney, what are the tax implications for discharge of indebtedness?

Attorney: Coleman Jackson

ANSWER 1:

  • Good morning Reyna.
  • That is an excellent place to start before we get into the Paycheck Protection Program and the special rules of forgiveness of Paycheck Protection Program loans to businesses under the CARES Act and the Consolidated Appropriations Act, 2021.
  • Generally speaking, under Internal Revenue Code Section 61(a)(11) and Treasury Regulations Section 1.61-12(a), a taxpayer that is discharged from paying a debt by a creditor must include the gross amount discharged in gross income for federal income tax purposes.  It is gross income because the taxpayer has received an increment in wealth; it’s the same as wages, or earnings or dividends or other forms of increase in wealth realized by a taxpayer.
  • There are several exceptions to this rule however, and the one we care about in this Podcast relates to the exceptions codified into law under the CARES Act and the Consolidated Appropriations Act, 2021.

Interviewer: Reyna Munoz, Immigration Legal Assistant

  • That sounds interesting.

Question 2:

  • Could you explain in a nutshell when a Payroll Protection Program loan is qualified for tax-free loan forgiveness under the Covid-19 relief programs you have been discussing in these last three podcasts?

Attorney: Coleman Jackson

ANSWER 2:

  • Reyna, in a nutshell; whether a Paycheck Protection Program Loan is eligible for tax-free cancellation of debt treatment depend upon how much of the paycheck protection program loan amount was used for payment of payroll costs during a covered period.
  • Under the Original CAREs Act, paycheck protection program loan proceeds could be used to pay certain eligible business expenses, such as, payroll costs, utility payments, rent and interest on some mortgage obligations. All of this cost had to be incurred by the recipient of the loan.  Depending upon whether 75 percent or more of the loan proceeds were used on payroll cost during the covered period, some or all of the payroll protection loan was subject to forgiveness under the CARES Act.  Under the original CARES Act there were some questions as to whether the cancelation of the debt was taxable income under Internal Revenue Code Section 61.  Also, under the original CARES Act, the IRS issued rules that stated that the  business costs paid from the Paycheck Protection Act Loan Proceeds were not deductible by the business on their federal tax return.  However, Congress overruled the Internal Revenue Service in the Consolidated Appropriations Act, 2021 making all Payroll Protection Program Loans tax-free and Congress also ruled that the business expenses paid with the loan proceeds were fully deductible business expenses pursuant to normal Internal Revenue Code provisions.  These particular relief provisions in the Consolidated Appropriations Act, 2021 relates back to and applies to Payroll Protection Program loans under the CARES Act as well as those originating under the Consolidated Appropriations Act, 2021.

Interviewer: Reyna Munoz, Immigration Legal Assistant

  • Let me make sure I understand what you just said attorney! I think you said that when a Payroll Protection Program Loan is used to pay business operating expenses, such as, payroll costs, utility payments, rent, and certain kinds of mortgage interest, the Payroll Protection Program loan can be canceled tax-free to the business?  And the business can still deduct the business expenses paid using the loan proceeds on their annual federal tax return!
  • Did I get all that right, Attorney?

Question 3:

  • Attorney is the discharge of Payroll Protection Loan under the CARES Act automatic or do an application for forgiveness have to be filed somewhere?

 Attorney: Coleman Jackson

ANSWER 3:

  • Reyna your summary of what I said is perfect. And no, the forgiveness of a Paycheck Protection Program Loan is not automatic.
  • The recipient must submit the appropriate application to the Small Business Administration through their financial institution.
  • Under the CARES Act, loan forgiveness request were filed on Form 3508 or 3508EZ depending upon the maximum amount of the loan forgiveness and certain other factors. Further all loan forgiveness applications have to be accompanied by credible business records and documents during the covered period supporting the business owners’ assertions in the debt cancellation applications.

Interviewer: Reyna Munoz, Tax Legal Assistant

QUESTION 4:

  • Attorney in a nutshell, what are the eligibility requirements for cancelation of the Payroll Protection Program Loan under the Consolidated Appropriation Act, 2021? I mean, Attorney are the rules, forms and steps to take for tax-free discharge of the debt the same as under the CARES Act?

Attorney: Coleman Jackson

ANSWER 4:

  • Very well! Let me describe some of the differences or changes to the Payroll Protection Program Loan forgiveness rules, forms and procedures made by the Consolidated Appropriations Act, 2021.
  • Remember in our previous Podcast in Part 2, we explained how the eligible expenses paid from a Paycheck Protection Program Loan was expanded under the Consolidated Appropriations Act, 2021 to include expenses like, payment for business software and cloud computing services incurred due to covid-19, certain covered capital expenditures and certain covered worker safety measure expenditures; The key metric to keep in mind is this one: The Paycheck Protection Program is still essentially focused on maintenance of a business’ employees and staff.  Keep people employed– that in a nutshell is what PPP is about.  You can just go by the name of the program— that is, Paycheck Protection Program.  So, expenditure of at least 75% of the loan proceeds to maintain payroll during the covered period is still key to tax-free cancellation of the debt under the Consolidated Appropriations Act, 2021.
  • The Consolidated Appropriations Act, 2021 made it simpler and easier for covered Paycheck Protection Program Loan requests from certain eligible recipients to be forgiven. Only a certification as follows need to be made by the loan recipient; and no substantiating documentation need to be filed with the certification:
  • An eligible recipient must submit to their lender a certification that attest that–
    1. a description of the number of employees they were able to retain because of the paycheck protection loan;
    2. Estimates of amount of the loan spent on payroll costs;
    3. Attest that they have accurately supplied items 1 and 2 and complied with Section 307, Simplified Forgiveness Application requirements of the Consolidated Appropriations Act, 2021 which requires retention of the employment records 4 years after submission of the forgiveness application and retention of all other pertinent records for a period of 3 years.
    4. The Consolidated Appropriations Act, 2021 states that the simplified loan application forgiveness form is not be any more than one page in length. These simplified PPP loan forgiveness procedures apply to Paycheck Protection Program loans in the amount of $150,000 or less.  The Section 307 Simplified Forgiveness Application provisions of the Consolidated Appropriations Act, 2021 applies to Paycheck Protection Program loans originating under the CARES Act or the Consolidated Appropriations Act, 2021.

Interviewer: Reyna Munoz, Tax Legal Assistant

  • That sounds like a solid way many businesses can keep their employees working during this dreadful pandemic. Attorney, Paycheck Protection Program Loan forgiveness is not subject to taxation, right.  I mean we started this podcast talking about discharge of indebtedness.

Question 5:

  • Is the cancelation or forgiveness by the Small Business Administration a discharge of indebtedness where the business will owe income taxes on the amount discharged? I need this to be clear; like in a nutshell; is it taxable income to the business or to the owner of the business?

Attorney: Coleman Jackson

ANSWER 5:

  • In a nutshell, Reyna!
  • Paycheck Protection Loans forgiven by the Small Business Administration is a statutory exception to the Internal Revenue Code Section 61.
  • In a nutshell, Paycheck Protection Program Loans that are forgiving or canceled by the Small Business Administration are tax-free to the business, to its owners, shareholders or partners.
  • Let me throw in this caution however, all business who apply for and successful obtain SBA cancelation of a Paycheck Protection Program Loan should maintain the required books and records because they might have to submit such records for audit inspection and examination up to four years after the loan has been written off by the government.

Interviewer: Reyna Munoz, Tax Legal Assistant

  • That last point is an important one. Paycheck Protection Program Loans are Small Business Administration Loans.  SBA loans are subject to audit examination.

Question 6:

  • Attorney, what is the extent or scope of the likely audit examination?

Attorney: Coleman Jackson

ANSWER 6:

  • Businesses should consult with their trusted advisors when seeking forgiveness of these loans. The matters that we have been discussing are laws.  That is, we are explaining recent Acts of Congress in the government’s attempt to deal with the economic fall out and devastation caused by this dreadful global pandemic.
  • In answer to your question with respect to the scope of the audit; I really don’t know exactly, but for sure the business is going to have to most likely present evidence of eligibility for the loan and eligibility for forgiveness of the loan pursuant to any subsequent rules and regulations that the Small Business Administration, United States Treasury or other governmental agency might issue in the future. Businesses should keep good books and records that properly reflect the expenditure of Paycheck Protection Program loan proceeds for at least seven years.

Interviewer: Reyna Munoz, Tax Legal Assistant

  • Attorney thanks for such a detailed explanation of discharge of indebtedness and the Paycheck Protection Program.

Reyna Munoz’s Concluding Remarks

  • Attorneythank you for this cogent presentation.
  • I know we have not talked about everything concerning the Consolidated Appropriations Act, 2021. But these are my questions for now.  Perhaps we can do another podcast on this topic as time permits and interest by our listeners is communicated to us through calls, emails or otherwise.
  • 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, 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 END OF “LEGAL THOUGHTS” FOR NOW

  • Thanks for giving us the opportunity to inform you about the “Consolidated Appropriations Act, 2021 as it relates to Discharge of Indebtedness and the Paycheck Protection Program”. We might do future blogs or podcast dealing with the Exclusion of Entities Receiving Shuttered Venue Operator Grants under Section 7(a)(36) of the Small Business Act, 15 U.S.C. 636(a)(36).
  • If you want to see or hear more taxation, 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..