Tax Lawyers Minneapolis

IRS Interest Rates: 4th Quarter of 2010

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On August 19, 2010, the IRS announced that interest rates for the calendar quarter beginning October 1, 2010, will remain the same as follows:

1. Individual underpayment and overpayment: 4%;
2. Corporate overpayment: 3%
3. Large corporate underpayment: 6%
4. Portion of corporate overpayment exceeding $10,000: 1.5%

The interest rate is determined on a quarterly basis and compounds daily. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points. Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half of a percentage point.

Interest factors for daily compound interest for annual rates of 1.5 percent, 3 percent, 4 percent, and 6 percent are published in Tables 8, 11, 13, and 17 of Rev. Proc. 95-17, 1995-1 C.B. 556, 562, 565, 567, and 571.

IRS Statute of Limitations: Tax Collections

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The statute of limitations limits the time for the IRS tax collection activities. Generally, there is a ten-year statute of limitations for the IRS collection of owed taxes. Thus, for assessments of tax or levy made after November 5, 1990, the IRS cannot collect or levy any tax ten years after the date of assessment of tax or levy. See 26 U.S.C. §6502(a)(1). Court proceedings must also be started by the IRS within the 10 year statute of limitations. Treas. Reg. Section 301.6502-1(a)(1).

For assessments of tax or levy made on or before November 5, 1990, the IRS cannot either collect or levy any tax six years after the date of assessment of tax or levy. See 26 U.S.C. §6501(e). However, if the six-year period ends after November 5, 1990, the statute of limitations is extended to ten years. Hence, in order to come under the six-year statute of limitations, the six-year period must end prior to November 5, 1990.

The ten-year statute of limitations can be extended by agreement between the taxpayer and the IRS, provided that the agreement is made prior to the expiration of the ten-year period. See 26 U.S.C. §6501(c)(4).

Thus, in figuring out the applicable statute of limitations, you must understand: the starting date for the running of the statute of limitations, any exceptions to the tolling of the statute of limitations, the last day that the IRS can audit a tax return, and the last day that the IRS can collect overdue tax on a tax return.

Sherayzen Law Office can help you understand all of these issues and represent your interests in your negotiations with the IRS.

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IRS Statute of Limitations: Taxpayer Audit

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The tax statute of limitations limits the time during which an action can be brought by the IRS for an audit. The general rule is that IRS has three years from the filing date to audit a tax return. 26 U.S.C. §6501(a) and Treas. Reg. §301.6501(a)-1(a). Similarly, under Treas. Reg. 301.6501(a)-1(b) no proceeding in court by the IRS without assessment for the collection of any tax can begin after the expiration of three years.

However, if the taxpayer fails to report on his tax return an amount in excess of 25% of the gross income (as stated on the filed tax return), then the statute of limitations is increased to six years. 26 U.S.C. §6501(e).

If the tax return was prepared by the IRS under the authority of section 26 U.S.C. §6020(b) the statute of limitations simply does not apply. See 26 U.S.C. §6501(b)(3). Likewise, the statute of limitations does not apply in the case of a false tax return or fraudulent tax return filed with the IRS with intent to evade any tax. See 26 U.S.C. §6501(c)(1).

This essay states only the general rules. The statute spells out numerous exceptions to these general rules. Therefore, even though most of the situations are resolved by the general rule, it is best to consult your tax attorney to see if your situation fits into one of the exceptions.

Call Sherayzen Law Office to discuss your tax situation with a tax attorney!

IRS Statute of Limitations: Claiming a Tax Refund

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Generally, a taxpayer may file a claim for a tax refund of an overpayment of any tax within three years from the time the tax return was filed with the IRS or two years from the time the tax was paid to the IRS, whichever period is later. If no tax return was filed with the IRS, the claim may also be made within two years from the date that the tax was paid to the IRS. See 26 U.S.C. §6511(a).

The statute spells out numerous exceptions to this general rule. For example, pursuant to 26 U.S.C. §6511(d)(1), a taxpayer may file a claim within 7 years if the tax refund pertains to a bad debt under section 166 or 832(c) or in connection with a loss from a worthless security under section 165(g).

Therefore, even though the majority of situations are resolved by the general rule, it is prudent to consult your tax attorney to see if your situation fits into one of the exceptions.

Call NOW Sherayzen Law Office to discuss your tax situation with a tax attorney!

Importance of Determining Your Tax Filing Status

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Figuring out your filing status is the first major step in filing your tax return. Your tax filing status not only will allow you to determine the correct tax (from the Tax Computation Worksheet or appropriate column in the Tax Table), but also it is crucial to understanding your eligibility for and the exact amount of deductions, exemptions, tax credits. For example, in some situations, if your taxable income is close to $160,000, the choice between filing as “single” and filing as “married filing separately” may influence whether you need to pay the alternative minimum tax (“AMT”); it is more likely that filing as “single” will help you avoid AMT, while “married filing separately” status may have the opposite effect. Sometimes, the latter tax filing status may also make you ineligible for certain tax credits even at a much lower income bracket – a situation that may be avoided if you are filing joint tax return with your spouse.

There are five possible tax statuses: 1) single; 2) married filing jointly; 3) married filing separately; 4) head of household, and 5) qualifying widow(er) with dependent child. The benefits and drawbacks of each status differ greatly depending on a tax situation. In some cases, you may be eligible for more than one status (for example, single and head of household); in other cases, your eligibility may be greatly influenced by the choices you make.

In order to draw out the benefits and avoid costly mistakes, careful tax planning is necessary. The Internal Revenue Code (“IRC”) is so complex that it requires a tax professional to fully understand its provisions. Tax attorneys are professionals who usually are in a much better position to legitimately utilize possibilities offered by the IRC.

Sherayzen Law Office is a law firm that offers individual and business tax services. We can help you understand your current tax position, file the tax returns for you, and carefully plan your tax strategies for the future. CALL NOW to start resolving your tax issues!