Category Archives: Taxation

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..

Podcast – Update on Covid-19 Relief for Individuals and Businesses pt. 2 | LEGAL THOUGHTS

Coleman Jackson, P.C. | Transcript of Legal Thoughts Podcast
Published January 18, 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 “Who is responsible to maintain minimum essential healthcare coverage?”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 2.”
  • 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 2.”

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 about a week or so ago, we had a conversation about tax relief offered to individuals and businesses in the Consolidated Appropriations Act, 2021. In the first Legal Thoughts Podcast, about a week ago, we spent most of our time talking about stimulus checks.  We had said that we would continue this conversation in a future podcast and primarily discuss benefits to businesses in the $900 billion Covid relief package.

Question 1:

  • But before turning to my questions dealing with business relief under the Consolidated Appropriations Act, 2021; besides the $300 weekly federal unemployment compensation for people who lost their jobs due to Covid, and the $600 stimulus checks for certain individuals, are there any other significant benefits in the Consolidated Appropriations Act, 2021 for individuals or households?

Attorney: Coleman Jackson

ANSWER 1:

  • Good morning Reyna.
  • Yes Reyna; let me briefly summarize some other significant benefits to individuals in the $900 billion dollar Consolidated Appropriations Act, 2021 that was passed by Congress on December 27, 2020.
    1. Families with children are eligible for the Child Tax Credit based on 2019 income rather than 2020 income.  This applies to both the determinations of eligibility for the earned income tax credit and the additional child tax credit.  These credits are designed to help low-income to modest income families with qualifying children.
    2. The threshold adjusted gross income (AGI) for determining the amount an individual or family can deduct in medical expenses was changed from 10 percent of AGI to 7.5 percent of AGI for tax years beginning in 2020.
    3. There are other minor benefits to individuals and families in the Consolidated Appropriations Act, 2021; but, I think I have mentioned the major ones that people should watch out for in terms of seeing whether they personally are impacted by the Consolidated Appropriations Act, 2021.

Interviewer: Reyna Munoz, Immigration Legal Assistant

  • So attorney let me summarize the benefits to individuals, families and households to make sure I understand what you are saying:
  • The unemployed due to Covid-19 is eligible to receive 11 weeks of $300 per-week federal emergency unemployment benefits on top of their state unemployment benefit.
  • With certain exceptions and limitations that you mentioned Attorney, individuals and families can be eligible to receive stimulus payments of $600 for each family member.
  • Families eligibility for the earned income credit and additional child tax credit is based on the families 2019 income.
  • And lastly, medical expense deductions starting in 2020 are based on adjusted gross income of 7.5 percent rather than 10 percent.

Question 2:

  • Attorney, attorney did I summarize the major benefits for individuals and families under the Consolidated Appropriations Act 2021 correctly? Is what I just said an accurate understanding of what you previously said?

Attorney: Coleman Jackson

ANSWER 2:

  • Reyna, you have a good ear. You basically heard me correctly.  The four points that you listed are the major benefits for individuals and families that I gleaned from the Consolidated Appropriations Act, 2021; but, keep in mind that the Act is very massive with numerous tax and none-tax provisions.  I am not going to try to cover that whole piece of legislation in a podcast.  We are merely pointing out some major high points that might be of interest to our listeners.
  • Before we turn to our discussion of businesses impacted by this legislation, let me just point out that the Consolidated Appropriations Act, 2021 corrected the original Cares Act that created the unfortunate situation where couples using only one social security number was denied the stimulus payment under the Cares Act. Under the Consolidated Appropriations Act, 2021, couples using only a single social security number in their household and the other an Individual Taxpayer Identification Number or ITIN are eligible for the $600 stimulus payment under the Consolidated Appropriations Act, 2021.

Interviewer: Reyna Munoz, Immigration Legal Assistant

  • Thanks for pointing out that a second round of direct cash assistance payments of $600 for each family member may be available for mixed-status families where only one spouse has a social security number under the Consolidated Appropriations Act, 2021. That is good news where only one spouse has a social security number!

Question 3:

Let us now talk about businesses.  What is in the Consolidated Appropriations Act, 2021 that benefits businesses, such as, sole proprietors and independent contractors?  And what types of businesses are we talking about, Attorney?

Attorney: Coleman Jackson

ANSWER 3:

  • Reyna; that is good direction to go in! We need to hit the high points of what’s in the Consolidated Appropriations Act, 2021 for businesses, such as independent contractors, sole proprietors, partnerships and other types of businesses.
  • The most significant benefit in the Consolidated Appropriations Act, 2021 is Title II—Continuing The Paycheck Protection Program and Other Small Business Support.
  • A Small Business Concern is defined in the Consolidated Appropriations Act, 2021 as it is defined in section 3 of the Small Business Act, 15 U.S.C. 632. Any business owner who are wondering whether they are a small business should consider reviewing section 3 of the Small Business Act.
  • The Act mandates that the Administrator of the Small Business Administration shall within 10 days after the Act becoming effective, draft, adopt and implement appropriate regulations to administer the provisions and laws established by Congress in the Consolidated Appropriations Act, 2021. Small business owners who think they might be eligible for any benefits under the Consolidated Appropriations Act, 2021 may want to consult with their banker, attorney or other trusted advisor immediately in preparation for the role out of  new SBA regulations implementing the Consolidated Appropriations Act, 2021.

Interviewer: Reyna Munoz, Tax Legal Assistant

QUESTION 4:

  • Attorney how soon will the Small Business Administration issue the implementation regulations for the Consolidated Appropriation Act, 2021?

Attorney: Coleman Jackson

ANSWER 4:

  • I am not sure with regards to the exact date or timing as to when the Small Business Administration will issue the regulatory framework or rules of the road in implementing the Paycheck Protection Act provisions of the Consolidated Appropriations Act, 2021. It is reported that the SBA is working on the regulations and guidelines.  What small business owners need to know at this time is that Congress authorized an additional $285 billion dollars for the Paycheck Protection Program and they specifically set business size limitations, a phase financial institution criteria where its suppose to start funding through community and small financial institutions typically used by minorities and others in depressed economic areas and then to major banking institutions who might not normally fund such areas, and Congress also expanded the types of qualified expenses that can be paid using the Paycheck Protection Program loan proceeds.  There are changes also made to the loan forgiveness procedures and lots and lots of other provisions in the Consolidated Appropriations Act, 2021 that benefits businesses.
  • The Consolidated Appropriations Act, 2021 distinguishes between two broad groups: Let me just call them the “First Draw Borrowers” and the Second Draw Borrowers.
  • First Draw Borrowers are borrowers who did not participate in the original Paycheck Protection Program enacted in the original Cares Act. The Consolidated Appropriations Act, 2021 requires first time borrowers to have less than 500 employees and their business operations must have been operational as of February 15, 2020.  The first draw  Paycheck Protection Program loan cannot exceed 2.5 times the small business average monthly payroll cost and cannot exceed $10 million dollars.

Interviewer: Reyna Munoz, Tax Legal Assistant

  • That sounds great!

Question 5:

  • What are the terms and requirements in the Paycheck Protection Program for the Second Draw Borrowers?

Attorney: Coleman Jackson

ANSWER 5:

  • The Consolidated Appropriations Act, 2021 are for businesses that participated in the original Cares Act, Paycheck Protection Program.  Businesses can apply for a “Second Draw Loan” if they have spent or expect to spend the full amount of their first Paycheck Protection Program loan before they receive funding for the second loan.  They can also apply for a Second Draw Loan” whether they have applied for and received forgiveness of their First Draw Loan or not.  In general the small business must have 300 employees or less to be eligible to apply for a Second Draw Loan under the Consolidated Appropriations Act, 2021, Paycheck Protection Program.
  • It should be noted that the Consolidated Appropriations Act, 2021 increased the ability for Paycheck Protection Program borrowers to request an increase in loan amount due to updated regulations. This effects, such entities that did not accept their loan or returned the loan under the Cares Act.  Impacted entities should consult with their lender, attorney or other trusted advisor concerning making such requests under the Consolidated Appropriations Act, 2021.

Interviewer: Reyna Munoz, Tax Legal Assistant

Question 6:

  • Attorney what are the other eligibility requirements for the Second Draw Paycheck Protection Program Loan under the Consolidated Appropriations Act, 2021?

Attorney: Coleman Jackson

ANSWER 6:

  • The term eligible entity under the Consolidated Appropriations Act, 2021 is defined as a nonprofit organization, housing cooperative, veteran’s organization, tribal business concern, eligible self-employed individual, sole proprietor, independent contractor, or small agricultural cooperative that employs 300 employees or less.
  • The maximum amount of a Paycheck Protection Program loan made to an eligible small business that is assigned a North American Industry Classification System code beginning with 72 at the time of disbursal is the lesser of, at the election of the entity (1) the entities average monthly payroll cost in the year the loan is made, or (2) the entities average monthly payroll cost for the calendar year 2019 multiplied by 3.5 or a maximum of $2 million dollars. The NAICS Code 72 covers such business establishments as cafeterias, restaurants, drinking places, recreational camps, hotels, and generally any type of accommodations and food services establishment.  The business must have been operational as of February 15, 2020.
  • All other small businesses, with the exception of those with North American Industry Classification System Code of 72, which are accommodations and food services industry sector business cannot exceed 300 employees and their second draw loans are limited to 2.5 times the business’ average monthly payroll costs. The second draw loan cannot exceed $2 million dollars. The business must have been operational as of February 15, 2020.
  • Finally, all businesses applying for a second Paycheck Protection Program loan under the Consolidated Appropriations Act, 2021 must show that their business revenue declined by at least 25 percent in any quarter in 2020 compared to the same quarter in 2019.
  • Again, I want to stress that the Small Business Administration are still developing the regulations and implementation of the guidelines for the Consolidated Appropriations Act, 2021. Therefore, some implementation particulars may change but the basic eligibility details are in the Statute itself.  Business owners could consult with their lender, attorney, or other trusted advisor in preparation for the role out of the Second Draw Paycheck Protection Program by the Small Business Administration.  And they can refer to the Small Business Administration website for updates about this program.

Interviewer: Reyna Munoz, Tax Legal Assistant

  • Attorney thanks for such a detailed explanation of what kinds of businesses might be eligible to apply for a Paycheck Protection Program Loan under the Consolidated Appropriations Act, 2021. Its eligible self-employed individuals, independent contractors, people with their own businesses too! And it sounds like, based on required computation models that you mentioned, Attorney; eligible individuals and business need to engage in some complicated computations in terms of determining what their qualified payroll costs are and computing the 25 percent decline in revenue and so forth.

Question 7:

  • Attorney, are there any limitations on the types of expenses a business can pay with a Paycheck Protection Program loan?

Attorney: Coleman Jackson

ANSWER 7:

  • Yes, there are. First of all, the Paycheck Protection Program is for business expenses.  It is absolutely improper to use any of the funds for personal expenses or any other expenses not specifically associated with the business who applies for and receive the Paycheck Protection Program loan whether under the First Draw Loan or the Second Draw Loan.
  • Under the Cares Act, business expenses such as, payroll costs, rents, and utilities could be paid from a Paycheck Protection Program Loan.
  • The Consolidated Appropriations Act, 2021 expanded types of expenses that can lawfully be paid from the Paycheck Protection Program Loan to business expenses such as:
    1. covered operations expenditures, such as, payments for any business software or cloud computing services that facilitates business operations, delivery of services, and such;
    2. covered property damage cost related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance;
    3. covered supplier cost for such things expenditure to a supplier of essential goods or services under contract, order or purchase order in effect during the Paycheck Protection Program coverage period; and
    4. covered worker protection expenditures which are capital facility expenditures to adapt a business establishment to comply with Department of Health and Human Services, the Center for Disease Control, local health authorities, or equivalent occupational safety standards and requirements beginning March 1, 2020 and extending to when the President declares the National Emergency resulting from Covid-19 has ended.
  • So as you can see, the types of eligible expenses that can be paid from the Paycheck Protection Program loan has been drastically expanded by enactment of the Consolidated Appropriations Act, 2021.

Reyna Munoz’s Concluding Remarks

  • Attorney, thank you for this cogent presentation.
  • I know we have not talked about the everything concerning the Consolidated Appropriations Act, 2021. But these are my questions for now.  Perhaps we can do another podcast on this topic in about two weeks or something.
  • 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 “Who is responsible to maintain minimum essential healthcare coverage?”. 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.  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 – The Long-Arm of the United States Tax Code | LEGAL THOUGHTS

Coleman Jackson, P.C. | Transcript of Legal Thoughts Podcast
Published November 24, 2020.

The Long-Arm of the United States Tax Code

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 “What does the Long-Arm of the United States Tax Code Mean?” 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: “What does the Long-Arm of the United States Tax Code Mean?”
  • Other members of Coleman Jackson, P.C. are Yulissa Molina, Tax Legal Assistant, Reyna Munoz, Immigration Legal Assistant, Leiliane Godeiro, Litigation Legal Assistant and Mayra Torres, Public Relations Associate.
  • On this “Legal Thoughts” podcast our law firm’s Immigration Legal Assistant, Reyna Munoz will be asking the questions and I will be giving the answers as she and I will be discussing: “What does the Long-Arm of the United States Tax Code Mean?”

Reyna Munoz Introduces Herself to the Audience:

  • Hi everyone, I am Reyna. I am the Immigration Legal Assistant at the tax, litigation and immigration law firm of Coleman Jackson, P.C.  Right here in Dallas, Texas.
  • Hi Attorney; today we will be discussing the topic: What does the Long-Arm of the United States Tax Code Mean?

Question 1:

  • Well, attorney what does the long-arm of the U.S. Tax Code mean anyway?

Attorney Answers Question 1:

  • Good morning Reyna. I think this is a fascinating topic; so let’s get started!
  • United States citizens and Lawful Permanent Residents (or commonly known as Green Card Holders) are required to pay taxes on their gross income, regardless of where it is earned or how it is earned in the world.  That basic rule is established in United States Code, Section 61(a); and explained in 26 Code of Federal Regulations, Section 1.1-1(b).
  • So, to answer your question, that is why it is often said by tax professionals that the U.S. tax code has long arms.  It can reach U.S. citizens and Green Card holders and their gross income from anywhere in the world.  These are very long-arms indeed!

Interviewer: Reyna Munoz, Tax Legal Assistant

Question 2:

  • That is interesting! How would the United States Government find out about this gross income and these foreign interest of U.S. citizens and Green Card Holders?

Attorney: Coleman Jackson

ANSWER 2:

  • S. citizens and Green Card Holders have a legal duty to voluntarily file appropriate tax returns and other informational materials with the U.S. government reporting their gross income and interests in financial accounts held overseas. Federal tax returns must be filed annually to report gross income (such as, Form 1040 (individuals), Form 1065 (Partnerships), Form 1120 (Corporations), Form 1041 (Estates).  All of these tax forms are filed with the Internal Revenue Service when applicable.  Further U.S. citizens and Green Card Holders with ownership interest or signatory authority of foreign accounts must complete Schedule B, Part III, Line 7 of Form 1040 their individual tax return discussing their interest or signatory authority over any foreign account during the tax period; and moreover, in the event the balance in any single account or combination of foreign accounts is greater than $10,000 during the tax period, the taxpayer must also file an FBAR with the Financial Crimes Network.
  • It will not be hard for the U.S. Department of Treasury to find out about taxpayers reporting obligations today with the technology that is in existence. In fact, it is easier today than ever for information to be shared by business entities, governmental entities and individuals in seconds around the world.
  • The U.S. Treasury has negotiated operating and reporting agreements with governments around the world to share directly or indirectly financial banking information of U.S. citizens and Green Card holders.
  • LET ME JUST SAY, IT IS EXTREMELY UNLIKELY THAT THE U.S. GOVERNMENT WILL NOT LEARN OF THESE EARNINGS AND FOREIGN ASSETS TODAY.

Interviewer: Reyna Munoz, Tax Legal Assistant

Question 3:

  • What can happen if a U.S. Citizen fails to report all of their gross income and fail to report their ownership interest in a foreign bank account?
  • First what is a foreign bank account anyway?

Attorney Answers Question 3:

  • A foreign bank account is an account in a foreign institution, or an institution physically located outside of the borders of the U.S. and its territories. Branches of U.S. domiciled banks located overseas are not classified as a foreign bank for FBAR reporting purposes or IRS purposes.
  • Individuals who fail to comply with U.S. laws can expect there to be a gradation of criminal and civil exposure. What I mean by that is in the United States criminal penalties and civil penalties for violation of the law are graded based on level of culpability.  This is also true with regards to failure to voluntarily comply with the U.S tax laws.  The U.S. tax code imposes varies kinds of penalties for violations, such as tax evasion, failure to file penalties, negligent filing penalties.
  • As for failure to report interest in foreign accounts, the IRS is permitted to assess and collect civil penalties against any individual who fails to report their interest in a foreign account on a timely filed FBAR.
  • I have written numerous blogs with regards to the penalty structure designed to hold tax cheats accountable.

 Interviewer: Reyna Munoz, Tax Legal Assistant

QUESTION 4:

  • Attorney what could you at least explain what you mean by gradation of penalties?

Attorney Answers Question 4:

  • Okay, very well! Let me briefly describe what gradation of penalties means as it relates to failure to file a required FBAR.
  • If an individual’s failure to file an FBAR is deemed willful by the IRS, then the IRS has the discretion to assess a maximum penalty of $100,000 or 50 percent of the balance in the foreign account at the time of the violation. Whichever is higher is the collectable penalty.
  • Willfulness does not require actual knowledge of the duty to report interest in a foreign account. Reckless or careless disregard of their statutory duty to report their ownership or beneficiary interest in the foreign account is enough for the IRS assess and collect the penalty.
  • The IRS has been challenged in Courts around the country, and they have a pretty good betting record on winning the willfulness FBAR cases. Come on, just look; these cases are what lawyers routine call document cases. For example, (1) it’s easy to prove whether someone is a U.S. citizen or Green Card Holder because there is a U.S. birth Certificate or Naturalization  Certificate or Lawful Permanent Resident Card; (2) it’s easy to prove that the account is located outside of the U.S. and its territories because there are bank account statements; and (3) it’s easy to prove that the taxpayer filed a tax return failing to list the foreign bank account because there is Schedule B, Part III, Line 7 of IRS Form 1040.  Hey, three strikes and you are out.  Willfulness to violate the FBAR rules is not a very high burden for the IRS to carry in these FBAR violation cases.

Interviewer: Reyna Munoz, Tax Legal Assistant

Question 5:

  • Okay Attorney that sounds like three strikes. It might be hard to hit the ball.  But what about—
  • If the taxpayer hired a professional tax return preparer to prepare and file, the return? Could the taxpayer now say it was none willful?

Attorney: Coleman Jackson

ANSWER 5:

  • Well it depends on all the facts and circumstances as to whether a skillful negotiated and advocate could make out a defense.
  • But the main thing everyone should take away is this:
  • Taxpayers are deemed to have constructive knowledge of and responsibility for the contents of their tax returns which are signed under penalty of perjury.
  • Where immigrants are involved who lacks the knowledge of the English language, cultural norms in terms of voluntary tax reporting, educational challenges and other capacity factors, in these circumstances skillful advocacy might manage to turn what appears to be a willful violation into a none willful violation of U.S. law. People with foreign gross income and foreign account interest need to do their due diligence in picking tax professionals in preparation of U.S. tax returns and compliance with FBAR requires because the penalties for failing to comply are rough regardless of the gradation of the penalties.

Interviewer: Reyna Munoz, Tax Legal Assistant

Question 6:

  • Okay, I think I understand.
  • Attorney, you mentioned voluntary disclosure. Is there a way a person can get this right even after they failed to property report their gross income or foreign account?

Attorney: Coleman Jackson

ANSWER 6:

  • Yes, the IRS has voluntary disclosure programs. But the Offshore Voluntary Disclosure Program or OVDP has ended and the IRS is no longer accepting taxpayers’ disclosures for failing to report foreign accounts under that program.
  • The various Streamlined Procedures Programs are still viable; but only if the violation is non willful. I have written blogs on this in the past and will not go into any more details here; other than, the taxpayer must make sure their actions were none willful because the IRS audits these submissions and if the IRS deems the actions of the taxpayer were willful violations rather than none willful violations, they could make a referral to IRS Criminal Investigations for possible referral to the U.S.  Justice Department.
  • The IRS also still have a FBAR only disclosure program that might be used by some taxpayers under appropriate circumstances.
  • Mayra, thanks for your questions on this topic. We have numerous blogs on foreign accounts on our law firm’s blog site.   We must go for now.

Attorney’s Concluding Remarks:

THIS IS END OF “LEGAL THOUGHTS” FOR NOW

  • Thank you for giving us the opportunity to inform you about What does the Long-Arm of the United States Tax Code Mean?”
  • We might discuss other aspects of this topic on gross income and foreign accounts matters in follow up podcasts or blogs in the near future.  If you want to see or hear more taxation, litigation and immigration LEGAL THOUGHTS from Coleman Jackson, P.C., subscribe to our podcast and stay tune!  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.