Friday, September 30, 2016
Friday, September 16, 2016
By: Otto S. Shill, III.
This is the last installment of a three part series discussing the basic tools business owners and managers need to be successful in tax audits. Part I discussed the need for business owners and managers to understand the financial details of the business. Part II explained why owners and managers should actively participate in decisions concerning how financial results are reported to government agencies. This final segment focuses on how to use professional advisors effectively in a tax audit situation.
Using Competent Professional Advisors is a Must.
Even with proper preparation and knowledge, today’s tax laws are far too complex to navigate without competent accounting and legal advice. When a business owner engages in a significant transaction, or knows ahead of time that the tax treatment of a transaction is likely to be reviewed by the government, he or she should involve a qualified accountant and tax attorney early in the planning process to ensure the maximum protection in the event of an audit.
Accountants are trained to understand tax rules and regulations, and how taxing agencies expect to see transactions reported on tax returns. For example, simply choosing the correct form of reporting can significantly reduce audit risk. Tax returns communicate the tax results of transactions to the government; therefore, tax laws limit the time that the government has to challenge the position taken on a particular tax return, as long as the return discloses sufficient information to advise the government of the transaction and its treatment. There is an art to providing enough information to satisfy that standard, while keeping the information succinct enough to minimize the risk of further questions from the government. Remember, even an audit that finds no errors in reporting can be costly to defend.
Hiring a competent tax attorney is also a critical part of successfully navigating today’s complex regulatory environment. Tax attorneys understand the tax laws and nuances of regulatory and judicial interpretations of those laws; therefore, working with a tax attorney when planning transactions with significant tax implications is critical so that the structure and documentation of the transaction supports the desired tax result. Also, while attorneys may or may not prepare tax returns, they can help to establish the legal basis for a return reporting position by offering research, advice, and formal opinions regarding proposed or completed transactions. Attorneys are particularly trained to understand when a tax reporting position may be developed in anticipation of litigation. In that circumstance, it may be appropriate to engage a tax attorney to handle a matter and to have that tax counsel employ the services of an appropriate accountant. The result of this arrangement is that the accountant’s work is attorney-client privileged work product and not generally available to the government or third parties. For the same reason, owners and managers should employ a competent tax attorney early in the audit process when an they have reason to know or suspect that reporting positions may not be resolved at the administrative level.
Any tax audit can result in disputed issues, which can end up in litigation before the U.S. Tax Court, U.S. Federal District Courts, or state or local courts. Such cases are won only with admissible evidence skillfully applied to demonstrate to taxing authorities and the courts the correctness of the taxpayer’s position. In this context, a tax return is evidence of a taxpayer’s position, but does nothing to establish it as correct. The taxpayer’s right to take a reporting position must be established with credible source documents, testimony, bank records, other similar evidence, and legal authority. Once an issue is supported in that way, it is the burden of the government to disprove the taxpayer’s entitlement to the claimed position. A tax attorney can be invaluable in identifying the particular items of evidence that support a return reporting position and in persuading an agency or the court to accept that position. Often, accountants and enrolled agents are not licensed to practice before the courts, and the assistance of a tax attorney will be critical to the success of the case. If litigation is likely to be the end result of an audit, business owners and managers should employ tax counsel early so that counsel has the opportunity to assemble the evidence. Bringing counsel in at the last minute to argue a case without that opportunity is not likely to be effective and many attorneys will not accept such an engagement because of the low likelihood of success.
Today’s regulatory environment is filled with complex rules and procedures enforced by government agencies. Tax laws in particular contain many complexities and nuances that are not necessarily intuitive to the untrained observer. Many current tax rules can be fully understood only by comprehending the historical context in which they arose. The marketplace is replete with a variety of advisors willing to offer tax advice or to resolve tax debts. Many are reputable and some are not. Using advisors because of the tax savings they promise is often a path to financial disaster. While some tax collections cases can be resolved through relatively simple procedures, most businesses must take a much more proactive approach to avoiding costly fights with the government and the associated professional costs, interest, and penalties.
Successful business owners and managers need to understand the financial aspects of their businesses in depth and must be able to identify allegations of a tax auditor that do not match the financial realities of the business. Successful business owners and managers will also take an active role in determining how transactions affecting their businesses are reported to government agencies. Finally, successful business owners and managers will establish professional relationships with competent, reputable accountants and tax counsel to plan transactions, support and develop reporting positions, prepare audit and litigation evidence and make persuasive arguments before administrative agencies and the courts.
Otto Shill is a member of the Tax, Estate Planning and Probate practice group at Jennings Strouss & Salmon, P.L.C. He is a certified tax specialist and represents businesses, business owners and high wealth individuals in transaction matters and before the administrative agencies of state and federal governments in matters related to taxation, compensation and benefits, employment and government contracting. Mr. Shill can be reached at email@example.com.
The tax attorneys at Jennings Strouss & Salmon, P.L.C. have decades of experience in successfully advising businesses, business owners and high wealth individuals in structuring transactions to achieve optimum business and tax results, and in defending them in audits and court proceedings before federal and state taxing agencies.
Monday, September 12, 2016
Chris Mason, is featured in Small Biz Daily.
Read the full article: Sexual Harassment in the Workplace
Chris Mason is a labor and employment law attorney at Jennings, Strouss & Salmon, P.L.C. He counsels employers and management on all aspects of labor and employment law, including traditional labor matters, such as collective bargaining and union organizing; restrictive covenants; employment discrimination; sexual harassment; whistleblowing; retaliation; wrongful termination; personnel policies; reductions in force; trade secrets; duty of loyalty; drug and alcohol testing; and other state and federal laws, rules, and regulations. He is also an experienced litigator, representing clients in Arizona, federal, and appellate courts, as well as before administrative agencies, including the National Labor Relations Board, the Department of Labor, the Equal Employment Opportunity Commission, the Arizona Civil Rights Division, and the Department of Economic Security.
Thursday, September 1, 2016
By: Arati Thaly
Are you forming a limited liability company (LLC) or a limited partnership (LP) in Arizona? Do you anticipate issuing ownership interests at the time of formation? If the answer to these questions is yes, then effective August 6, 2016, the offer and sale of those ownership interests may be exempt from registration under Arizona’s blue sky laws.
Arizona’s blue sky laws, namely the Arizona Securities Act (the Act), require any securities offering to be registered before those interests are sold or offered for sale within or from Arizona, unless the security or the transaction is exempt from the Act’s registration requirements.
Prior to August 6, organizers of a corporation could issue shares to up to 10 “incorporators” if (1) they did not intend to sell those shares to others and (2) the shares are in fact not directly or indirectly sold to a third party within 24 months, unless there is a change of financial circumstances.
This exemption is known as the “Incorporator Exemption”. It did not help owners of LLCs or LPs, however, until now.
The Incorporator’s Exemption is available only at organization. Therefore, it is crucial to take steps to properly document the initial organizers’ status as “original incorporators, organizers, or general partners” prior to organizing the company.
The securities attorneys at Jennings Strouss regularly work with Founders in organizing companies, helping them to raise capital in compliance with the securities laws and doing business transactions tailored to individual needs. For more information on securities exemptions, restricted stock purchase agreements or securities offerings generally, you can reach Arati Thaly at firstname.lastname@example.org (602) 262 5920.
Jennings, Strouss & Salmon was ranked #1 on the Phoenix Business Journal's 2016 edition of its Law Practices - Mergers & Acquisition list.
Read the full article: Let's Make a Deal: Here are the Top M&A Law Practices in Phoenix