All Forum Posts by: Michael T. Breen

IRC 9722 states that if the principal purpose of any transaction is to evade or avoid liability under this chapter, this chapter shall be applied (and such liability shall be imposed) without regard to such transactions. In English, this means if the transactions doesn't have a business purpose and true economic substance, the transaction or entity creating the tax savings will be disregarded for tax purposes and the correct tax will be imposed. If you google US Tax Court Sham you will see many tax court cases that cite sham with no economic substance and disregard the entity or transaction. There is a variety of civil penalties that can be assessed based on the facts and circumstances of a particular tax scheme. There also is the potential of a criminal matter with the US Department of Justice-Tax Division.

Sorry everyone, I was intending to post in ripping off the IRS post

 IRC 9722 states that if the principal purpose of any transaction is to evade or avoid liability under this chapter, this chapter shall be applied (and such liability shall be imposed) without regard to such transactions.  In English, this means if the transactions doesn't have a business purpose and true economic substance, the transaction or entity creating the tax savings will be disregarded for tax purposes and the correct tax will be imposed. If you google US Tax Court Sham you will see many tax court cases that cite sham with no economic substance and disregard the transaction or entity. There is also a variety of civil penalties that can be assessed based on the facts and circumstances of a particular tax scheme.   

There should be no problem with getting an installment agreement. Once the IRS approves the installment agreement they will release the levy. When calling the IRS have a fax number handy and request that they fax the levy release. Normally they just mail the release. This should be able to accomplished with a single phone call.

It sounds like the IRS prepared a SFR (substitute for return) for 2014. The IRS has the legal authority under IRC 6020b to prepare a return for a taxpayer when they failed to file a return. The majority of the time the return the IRS prepares and assesses a tax that is much greater than actually due. This is because they don't consider all your deductions. When the taxpayer files the actual return the IRS will adjust their figures. The taxpayer's employer more than likely received a levy notice from a branch of the IRS called ACS (Automated Collection Services). They automatically sent out levy notices. Part of the motivation in the IRS serving levies is to bring the taxpayer into compliance (ie unfiled tax return 2014). You may be able to handle this your self by simply calling the IRS and explaining the circumstances. They may release they levy and set a deadline for you to file the return. If that doesn't work, entering into an installment agreement will release the levy. The IRS will agree what they call a streamlined installment agreement if you owe less than $25K and can full pay within 72 months. This may put a Band-Aid on it until you file the return. If that doesn't work and the levy is creating a financial hardship (unable to obtain housing, medical etc) you can file Form 911 with the Taxpayer's Advocate. I hope this helps.

Hi Nancy

    The law states that you must work at least 750 hours per year and more than 50% of your time must be devoted in your trade or business as a real estate professional as opposed to any other unrelated profession.  It is very difficult to convince the IRS that you are a real estate professional if you have another full time job. If you took the position on a tax return that you were a real estate professional and got audited, the IRS would request your daily log record of you detailed activities as a real estate professional and an engineer to determine if you did meet the 2 rules. In the real world most people do not keep daily logs of both activities. However, there is a provision in the law that allows the taxpayer to reconstruct their daily log. However, I would not rely on this because the courts do no follow this rule. There is a US Tax Court case that denied the taxpayer's reconstructed log citing, " we will not accept a  guesstimate". If you don't have a solid daily log with supporting documentation as evidence you will surely have an up hill battle. I hope this helps. 

Hi Nicole

You may want to contact IRS Lien Release Department and obtain a copy of the release. By law they are required to release the lien within 30 days of guaranteed payment. Generally, when you call Lien Release you will get a vm recording. Leave a message that you want a copy of the release and they will mail it to you. It will go quicker if you leave the lien number, date filed and where. 

Once you get your copy of your lien release, you may want to consider requesting withdrawal of the Federal Tax Lien from the IRS. This is done on Form 12277 Application for withdrawal of Filed Form 668(y) Notice of Federal Tax Lien. Based on your facts it appears that your reason for the request is that , " it is in the best interest of the taxpayer and the government" I would recommend preparing a narrative explaining why it is in the best interest of the government (are they going to somehow loose tax revenue with that lien reported on your credit report) as part of the application. You also must request that the IRS report the withdrawal to the 3 credit bureaus. They don't do it automatically. You must also provide the contact info for the credit bureaus. Lastly, if your request gets denied, you have a right of appeal. I hope this helps.

Just conducted a little research and found an interesting case that points out the difficulty the courts had historically distinguishing between the status of trade or business v investor. This case was responsible for developing guidelines that courts use today in an effort to distinguish between the two. The case is United States of America, Appellant v Ada Bell Winthrop, Individually and as Executrix under the will of Guy L. Winthrop, Deceased, Appellee, 417 F.2d 905(5th Cir. 1969). It is a pretty easy read and is available @ law.justia.com/cases/federal/appellate-courts. And Josh! I'm not going to lash! You look like you can take me! Enjoy!

I don't believe there are any tax disadvantages.  A significant controlling factor regarding taxation of a flip, is the taxpayer's intent. If the taxpayer's intent is to do an occasional flip, he or she would be classified as an investor. If the taxpayer started to do multiple flips the IRS would consider the taxpayer to be in the trade or business as flipping houses. As an investor, you would be paying tax at your ordinary tax rate (25% for many)  if it was short term capital gain and 15% if the holding period exceeded 12 months. However, if you decide to become a serial flipper, you then fall into the category of being in the trade or business of flipping houses that would subject you to the ordinary tax rates (25%) plus self-employment tax of 15.3%. A way around this would be forming an S Corporation and paying yourself a reasonable salary. The benefit of this method is the saving of the self-employment tax. In example, if you had profit of $100,000, and a reasonable salary for you would be day $50,000, you just saved $7,650 in taxes ($50,000 @15.3%). However, before you do this make sure your state is corporation friendly. For example New Hampshire has a corporate tax rate on profits of 8.5% plus a dividend tax of 5% when you withdraw the money from the corporation. I hope this helps!