State vs. Federal Tax Issues: Key Differences and How to Handle Each

Navigating tax issues can be challenging, especially when dealing with both state and federal taxes. Understanding the key differences between state and federal tax issues and how to handle each can save you time, money, and stress. In this blog post, we will explore the distinctions between state and federal taxes, common issues that arise with each, and steps to effectively manage them.

Understanding Federal Tax Issues

 

Federal taxes are imposed by the Internal Revenue Service (IRS) and apply to all U.S. citizens and residents. These taxes fund various federal programs, including defense, social security, and infrastructure. The primary components of federal taxes include income tax, payroll tax, and corporate tax.

Common Federal Tax Issues

  1. Filing Errors: Mistakes on your federal tax return, such as incorrect income reporting or missing deductions, can lead to audits and penalties.
  2. Underpayment: Failing to pay the full amount of taxes owed can result in interest charges and penalties.
  3. Tax Audits: The IRS may audit your return if they suspect errors or discrepancies.
  4. Tax Debt: Unpaid taxes can accumulate, leading to significant debt and potential legal actions.

Handling Federal Tax Issues

  • Accurate Filing - Ensure your federal tax returns are accurate by double-checking all information and using tax preparation software or professional services. This reduces the risk of errors and audits.
  • Pay on Time - Avoid penalties and interest charges by paying your taxes on time. If you cannot pay the full amount, consider setting up a payment plan with the IRS.
  • Keep Records - Maintain detailed records of your income, expenses, and deductions. This documentation is crucial if you are audited or need to amend your return.
  • Seek Professional Help - Consider consulting with a tax professional, such as an Enrolled Agent, CPA, or tax attorney, especially if you have complex tax issues or face an audit.

Understanding State Tax Issues

State taxes vary by state and can include income tax, sales tax, property tax, and excise tax. Each state has its own tax laws and regulations, which can differ significantly from federal tax laws.

 

Common State Tax Issues

  1. Different Deadlines: State tax filing deadlines may differ from federal deadlines, leading to missed filings and penalties.
  2. Income Reporting: States may have different rules for reporting income, especially for out-of-state earnings.
  3. Sales Tax Compliance: Businesses need to collect and remit sales tax according to state laws, which can vary widely.
  4. Property Taxes: Issues can arise with property tax assessments and payments, leading to disputes with local tax authorities.

Handling State Tax Issues

  • Understand State Laws - Familiarize yourself with your state's tax laws and regulations. Visit your state's tax agency website or consult a local tax professional for guidance.
  • File on Time - Ensure you meet all state tax filing deadlines to avoid penalties. Set reminders and use tax preparation software that supports state tax filings.
  • Accurate Reporting - Report your income and other taxable activities accurately according to state laws. This includes any out-of-state earnings and sales tax collections.
  • Appeal Property Tax Assessments - If you believe your property tax assessment is incorrect, you can appeal it. Gather evidence, such as recent property sales data and appraisal reports, to support your case.

Key Differences Between State and Federal Tax Issues

  1. Jurisdiction: Federal taxes are managed by the IRS, while state taxes are handled by individual state tax agencies.
  2. Tax Rates: Federal tax rates are uniform across the country, while state tax rates can vary widely.
  3. Deductions and Credits: Federal and state tax laws offer different deductions and credits, which can impact your overall tax liability.
  4. Filing Requirements: States may have unique filing requirements and forms that differ from federal requirements.

Conclusion

Understanding the differences between state and federal tax issues is crucial for effective tax management. By familiarizing yourself with the specific requirements of each, accurately reporting your income, and seeking professional help when needed, you can navigate these complexities with confidence.

At Propono, we specialize in helping taxpayers manage both federal and state tax issues. Whether you’re facing an audit, dealing with tax debt, or need assistance with tax filings, our team of experienced tax professionals is here to help. Schedule a meeting with us today to ensure your tax matters are handled correctly and efficiently.  Learn more at www.propono.tax


Understanding IRS Notice CP2000: Steps to Take and Avoid Common Mistakes

Receiving an IRS Notice CP2000 can be a stressful experience for any taxpayer. This notice indicates that the income or payment information the IRS has on file does not match the information reported on your tax return. While it’s not a formal audit, it’s crucial to address it promptly to avoid further complications. In this blog post, we will guide you through understanding Notice CP2000, the steps you need to take, and how to avoid common mistakes.

What is IRS Notice CP2000?

IRS Notice CP2000 is sent when there is a discrepancy between the income or payment information the IRS has received from third parties (such as employers, banks, and other financial institutions) and the information you reported on your tax return. This notice outlines the differences and proposes additional taxes, penalties, and interest based on the unreported or misreported amounts.

Steps to Take When You Receive Notice CP2000

  1. Review the Notice Carefully: Start by carefully reading the notice. IRS Notice CP2000 will include details about the discrepancies, proposed changes, and any additional taxes, penalties, and interest that may be owed. Ensure you understand the items in question and compare them with your tax return and supporting documents.
  2. Verify the Information:  Check the accuracy of the information provided in the notice against your records. Sometimes, the IRS may have incorrect or incomplete information. Look for any errors or omissions that may have caused the discrepancy.
  3. Gather Supporting Documents:  Collect all relevant documents that support your original tax return. This may include W-2s, 1099s, bank statements, receipts, and any other documentation that substantiates the income and deductions you reported. Having these documents on hand will help you respond accurately to the IRS.
  4. Respond Promptly:  You typically have 30 days from the date of the notice to respond. You can either agree with the proposed changes or disagree. If you agree, follow the instructions to sign and return the notice along with the payment for any additional taxes owed. If you disagree, provide a detailed explanation and include any supporting documents that back up your position.
  5. Seek Professional Help:  Consider consulting with a tax professional, such as an Enrolled Agent, CPA, or tax attorney, especially if the notice involves complex issues or significant amounts of money. A tax professional can help you understand the notice, gather the necessary documents, and respond appropriately to the IRS.

Avoiding Common Mistakes

  1. Ignoring the Notice:  One of the biggest mistakes you can make is ignoring Notice CP2000. Failure to respond can lead to additional penalties and interest, and the IRS may proceed with the proposed changes without your input. Always respond within the specified time frame.
  2. Incomplete or Inaccurate Responses:  When responding to the notice, ensure that your response is complete and accurate. Double-check all the information and include all necessary supporting documents. An incomplete or inaccurate response can delay the resolution process and may result in further complications.
  3. Not Keeping Copies:  Always keep copies of the notice, your response, and any supporting documents for your records. Having a complete set of documents can be invaluable if you need to reference them later or if there are further inquiries from the IRS.
  4. Failing to Update Your Address:  Make sure the IRS has your current address. If you move, file a change of address with the IRS using Form 8822. This ensures you receive all correspondence promptly and can respond in a timely manner.
  5. Not Consulting a Professional:  Handling a CP2000 notice can be complicated, and mistakes can be costly. Don’t hesitate to seek professional help if you’re unsure about any aspect of the notice or how to respond. A tax professional can provide valuable guidance and representation.

Conclusion

Receiving an IRS Notice CP2000 can be unsettling, but understanding the notice and knowing how to respond can help you resolve the issue efficiently. Review the notice carefully, verify the information, gather your documents, and respond promptly. Avoid common mistakes by not ignoring the notice, ensuring your response is complete and accurate, keeping copies of all correspondence, updating your address, and seeking professional help when needed.

At Propono, we specialize in helping taxpayers navigate IRS notices and resolve tax issues. If you’ve received a CP2000 notice or have any other tax concerns, contact us today for expert assistance. We’re here to help you through every step of the process and ensure your tax matters are handled correctly.  You can schedule an appointment here or learn more at www.propono.tax


The Benefits of Hiring a Professional Tax Accountant for Your Tax Liability

If you owe the IRS more than $25,000, you’re likely feeling the weight of this financial burden. Both individuals and business owners can find themselves in challenging situations when tax liabilities reach significant amounts. The complexities of tax laws and the fear of IRS actions can be overwhelming. This is where hiring a professional tax accountant can be invaluable. Here, we’ll explore the benefits of enlisting a professional to manage your tax liabilities and navigate IRS troubles.

In-Depth Knowledge of Tax Laws and Regulations

Professional tax accountants, particularly Enrolled Agents (EAs), possess a deep understanding of tax laws and regulations. EAs are federally licensed tax practitioners who have undergone extensive training and examinations. They are authorized to represent taxpayers before the IRS. This expertise ensures that they are well-equipped to handle your tax issues, providing you with accurate and up-to-date advice tailored to your specific situation.

Customized Tax Resolution Strategies

Every taxpayer’s situation is unique, and a one-size-fits-all approach is rarely effective. A professional tax accountant will evaluate your individual circumstances and develop a customized strategy to address your tax liabilities. They can negotiate with the IRS on your behalf, exploring options such as installment agreements, offers in compromise, and penalty abatements. This personalized approach increases the likelihood of a favorable outcome, helping you manage and reduce your tax debt effectively.

Precision and Timeliness in Filing

Errors on tax returns can lead to further complications, penalties, and increased scrutiny from the IRS. Professional tax accountants ensure that your filings are accurate and submitted on time, minimizing the risk of mistakes. Their meticulous attention to detail and thorough understanding of tax forms and schedules means that your returns are completed correctly. This precision not only helps avoid potential issues but also provides peace of mind, knowing that your tax matters are in capable hands.

Reduction of Stress and Anxiety

Dealing with significant tax liabilities can be incredibly stressful. The fear of audits, penalties, and legal actions can take a toll on your mental health. Hiring a professional tax accountant alleviates this stress. They handle all communications with the IRS, represent you in meetings, and manage the necessary paperwork. This allows you to focus on other important aspects of your life or business without the constant worry about your tax situation.

Maximization of Tax Relief Opportunities

Tax accountants are skilled at identifying tax relief opportunities that you might not be aware of. They can uncover deductions, credits, and exemptions that can reduce your tax liability. By leveraging their knowledge, you can potentially save a significant amount of money and lessen the impact of your tax debt. This expertise in finding and applying for these relief opportunities is crucial in minimizing the financial burden of your tax liabilities.

Long-Term Financial Planning and Stability

Beyond resolving your immediate tax issues, a professional tax accountant can assist with long-term financial planning. They can provide advice on structuring your finances, managing cash flow, and planning for future tax obligations. This proactive approach helps prevent future tax problems and ensures that you remain in good standing with the IRS. By implementing sound financial strategies, you can achieve greater financial stability and security.

Representation Before the IRS

One of the most significant advantages of hiring a professional tax accountant, particularly an Enrolled Agent, is their ability to represent you before the IRS. Whether you’re dealing with audits, collections, or appeals, having a knowledgeable advocate on your side can make a substantial difference. They can negotiate more effectively, ensuring that your interests are protected and that you receive fair treatment from the IRS.

Conclusion

Facing a substantial tax liability can be daunting, but you don’t have to tackle it alone. Hiring a professional tax accountant provides you with the expertise, support, and peace of mind needed to navigate the complexities of tax resolution. If you owe the IRS more than $25,000 and don’t know where to turn, consider enlisting the help of a seasoned tax professional. It’s a strategic investment that can lead to significant savings and a more secure financial future.

Schedule a consultation with Propono today to find out how we can help you resolve your tax problems!


Dealing with IRS Wage Garnishments

Dealing with IRS collections can be daunting, especially when faced with the prospect of a wage garnishment. The complexity of tax law combined with the financial strain of having your paycheck reduced can feel overwhelming. However, understanding your options and taking proactive steps can help alleviate the stress and resolve your tax debt. In this guide, we'll explore the process of wage garnishment, how to address it effectively, and steps to prevent future IRS collection actions.

Understanding Wage Garnishment:

Wage garnishment is a legal process through which the IRS requires your employer to withhold a portion of your earnings to satisfy a tax debt. This can occur when you owe back taxes, have unfiled tax returns, or have unresolved tax debt. The IRS typically sends several notices before initiating wage garnishment, providing you with an opportunity to address the issue before it escalates.

Completing Form 668-W:

If a wage garnishment has been ordered, you'll need to complete Form 668-W, Notice of Levy on Wages, Salary, and Other Income. This form outlines the amount to be withheld from your paycheck and provides instructions for your employer. It's crucial to fill out this form accurately and promptly to ensure compliance with IRS requirements.

Resolving Wage Garnishments:

To remove a wage garnishment, several options are available:

  1. Installment Agreement: This arrangement allows you to pay off your tax debt over time in manageable monthly installments. It can help stop wage garnishment as long as you adhere to the agreed-upon payment plan.
  2. Offer in Compromise (OIC): An OIC enables you to settle your tax debt for less than the full amount if you can demonstrate financial hardship. If accepted, it can also halt wage garnishments.

Staying Compliant:

Preventing future IRS collection actions is essential to maintaining financial stability. This includes filing your tax returns on time, paying any taxes owed promptly, and keeping accurate financial records. Seeking professional tax assistance can provide valuable guidance in staying compliant and resolving tax debt effectively.

Dealing with wage garnishments can be challenging, but it's essential to take proactive steps to address the issue and prevent future IRS collection actions. By understanding your options, completing necessary forms accurately, and seeking professional assistance when needed, you can resolve your tax debt and regain control of your finances. Contact Propono today for expert guidance and support in managing IRS wage garnishments.

At Propono, we specialize in tax resolution services and understand the complexities of IRS collections. If you're facing wage garnishment issues, our team of experts is here to help. We'll work with you to explore your options, negotiate with the IRS on your behalf, and develop a personalized resolution plan tailored to your financial situation.

To start working with us, visit: https://propono.taxdome.com/


Maine Tax Relief for Severe Weather

In December 2023, Maine faced the brunt of severe weather conditions that left a trail of destruction in its wake. From power outages to flooding and significant damage, the central and western regions of the state bore the impact of these natural disasters. In response to the crisis, President Joe Biden declared a Major Disaster Declaration, opening the door to federal assistance to aid in the recovery efforts. As part of this relief, the Internal Revenue Service (IRS) announced tax relief measures for individuals and businesses across ten affected counties.

Disaster Declaration Brings Hope

President Biden's approval of the Major Disaster Declaration for central and western Maine marks a significant step in supporting the state's recovery. The declaration enables federal assistance to complement local recovery initiatives. It's a sign of solidarity in the face of adversity, and it offers a glimmer of hope to those grappling with the aftermath of the severe weather events.

Tax Relief for the Affected

The IRS wasted no time in extending its support to the residents and businesses of the affected counties. In a news release, the IRS detailed the tax relief measures available to those impacted by the disaster. This relief covers a wide range of financial aspects, including tax filing and payment deadlines.

Eligible Counties

The relief extends to individuals and businesses in the following ten counties: Androscoggin, Franklin, Hancock, Kennebec, Oxford, Penobscot, Piscataquis, Somerset, Waldo, and Washington. If you reside or have a business in any of these areas, you are eligible for the extended tax relief.

Extended Deadlines

One of the key provisions of this relief is the extension of tax filing and payment deadlines. Individuals and businesses affected by the severe weather now have until June 17 to file their tax returns and settle any taxes due during the current period. This extension provides much-needed breathing room during the recovery phase.

Additional Time

For those who require more time to gather their financial documents and prepare their federal income tax returns, the IRS has set an April 15 deadline for requesting an extension. This extension would grant a new deadline of October 15, 2024, ensuring that individuals and businesses can meet their tax obligations without unnecessary stress.

FEMA's Role

The relief and deadline extensions come on the heels of the Federal Emergency Management Agency's (FEMA) disaster declaration. FEMA's declaration empowers the IRS to postpone specific tax-filing and tax-payment deadlines for residents and businesses located in designated disaster areas.

Stay Informed

As damage assessments continue, those who have incurred losses in areas designated for assistance can apply for aid through FEMA. The application process can be initiated online, via phone at 800-621-FEMA (3362), or using the FEMA App. It's important to stay informed about the assistance available to aid in the recovery process.  Visit https://www.fema.gov/.

In times of crisis, support from both federal and local authorities is crucial. The Major Disaster Declaration for central and western Maine, along with the Maine Severe Weather Tax Relief measures, offers a lifeline to those affected by severe weather. As the state rebuilds and recovers, these measures provide essential financial relief, allowing Maine residents and businesses to focus on their recovery efforts with greater peace of mind.


IRS Announces Key Updates and Relief Measures

Tax Filing Commences for 2023 Earnings The Internal Revenue Service (IRS) has announced that taxpayers can start filing their taxes on 2023 earnings from January 29, 2024. This marks the official commencement of the 2024 tax season, signaling the need for taxpayers to prepare their documents and filings.

Significant Penalty Relief for Taxpayers In a major development, the IRS is offering penalty relief for eligible taxpayers who were impacted by the pause in collection notices during 2020 and 2021. This relief comes as part of the IRS’s response to the COVID-19 pandemic, during which it temporarily halted the mailing of automated payment reminders for overdue tax bills. While reminder notices were suspended, penalties for failing to pay continued to accrue, placing an added burden on taxpayers.

This new penalty relief is expected to benefit nearly 5 million taxpayers, providing an estimated $1 billion in tax relief. Targeted primarily at individuals earning under $100,000 annually, this relief represents a significant easing of the financial burden for many.

Staggered Account Adjustments The IRS has detailed a phased approach to making these adjustments. Individual accounts have already been adjusted, with business accounts set to follow in late December to early January. Trusts, estates, and tax-exempt organizations will see adjustments in late February to early March 2024.

For those eligible, this relief is automatic, requiring no action on their part. Taxpayers who have already paid the penalties but qualify for relief will receive refunds or have their payments credited against outstanding tax liabilities. However, it’s important to note that the failure-to-pay penalty will resume on April 1, 2024, for eligible taxpayers.

IRS Commissioner Comments on Relief Measures IRS Commissioner Danny Werfel emphasized the agency’s commitment to supporting taxpayers, especially those who haven’t received communication from the IRS in a while and might face a sudden tax bill. This penalty relief is part of the IRS’s broader effort to provide a more taxpayer-friendly approach.

Important Dates and Deadlines for 2024 Tax Season

  • Tax Season Start Date: January 29, 2024.
  • Federal Tax Return Deadline: April 15, 2024.
  • Extended Deadlines for Maine and Massachusetts: April 17, 2024, due to state holidays.
  • Special Provisions for Disaster Areas: Additional filing time may be available.

The IRS expects to process over 128.7 million individual tax returns by the April 15 deadline, with most refunds issued within 21 days, and many available by February 27. However, some returns requiring additional review may take longer.

IRS Launches Direct File Program In a transformative move, the IRS is introducing the pilot Direct File program in 2024. This program allows eligible taxpayers to file their 2023 federal tax returns online directly with the IRS, free of charge. Initially available in phases, the program is expected to be fully operational by mid-March.

Eligible residents in 12 states, including those from states without an income tax, can participate if they meet specific criteria. Four states – Arizona, California, Massachusetts, and New York – are collaborating with the IRS to integrate state taxes into the program.

Commissioner Werfel assures taxpayers of continuous improvements in IRS operations, emphasizing the agency’s commitment to utilizing new funding to enhance taxpayer services.

Our sister company, Heritage Tax Company, is accepting new tax clients.  Click here for the New Client Application.


5 Common Triggers for Small Business IRS Audits: How to Stay Prepared

IRS audits can be a source of anxiety for both individual taxpayers and small business owners. In recent years, the IRS has increased its focus on auditing small and medium-sized businesses, especially those with relatively low annual revenue. While there's no foolproof way to avoid an audit, being aware of common red flags and taking preventive measures can significantly reduce your risk. In this blog post, we'll explore five reasons why small businesses get audited and provide tips on how to minimize your audit risk.

1. Reasonable Salary Small businesses structured as S-Corporations need to pay their shareholder-employees reasonable salaries. Paying an unreasonably low or high salary can trigger an audit, as it may be an attempt to avoid payroll taxes. Determining what constitutes "reasonable compensation" can be complex, but conducting market research and ensuring your salaries align with industry standards can help you stay in compliance.

2. Losses and Deductions While itemizing deductions is common for small business owners, having an excessive number of deductions can raise red flags. Deductions must meet the criteria of being both "ordinary" and "necessary" for your trade or business. Keep meticulous records, retain receipts, and ensure your deductions align with IRS guidelines to avoid scrutiny.

3. Shareholder Distributions Shareholder distributions must be handled alongside reasonable compensation. Making distributions without providing proper compensation can attract IRS attention as an attempt to avoid payroll taxes. Understand your options, which include no compensation, reasonable compensation, or a combination of both. Be aware that retroactive distributions may come with additional costs.

4. Employment Tax Compliance Misclassifying workers as independent contractors when they should be employees is a common audit trigger. Independent contractors should have control over their schedules, work assignments, and conditions. Review IRS guidelines carefully when hiring new workers to avoid misclassification and potential liabilities.

5. Entity-Level Issues Businesses that deal primarily in cash transactions, such as restaurants or beauty salons, may face a higher risk of audits due to the difficulty of tracking cash income. While cash transactions are essential for some businesses, maintaining impeccable records and accurately reporting income is crucial to minimize audit risk.

While IRS audits remain a concern for small businesses, understanding these common triggers and taking proactive steps to address them can help you reduce your audit risk. Ensuring reasonable compensation, careful deduction reporting, proper handling of shareholder distributions, accurate worker classification, and diligent record-keeping can go a long way in keeping your small business in compliance with tax regulations. Remember, being prepared and informed is your best defense against potential audits.


Your Guide to the IRS's ERC Voluntary Disclosure Program

Employee Retention Credit notebook
The Employee Retention Credit took the business world by storm. Learn more about your options if you were involved in a false claim.

The IRS has launched a groundbreaking initiative aimed at helping businesses correct and repay questionable Employee Retention Credit (ERC) claims. In this blog post, we delve into the details of the ERC Voluntary Disclosure Program—a unique opportunity for businesses to rectify their claims and avoid penalties. Act swiftly, as the program is open only until March 22, 2024.

Understanding the Background

The IRS initiated this program as part of its ongoing efforts to combat aggressive marketing practices surrounding the ERC. Some businesses were misled into making erroneous claims, and the IRS is keen on setting things right. This voluntary disclosure program is designed to provide relief to eligible businesses while ensuring tax compliance.

Previous Initiatives

Earlier this year, the IRS began mailing letters to thousands of taxpayers, notifying them that their ERC claims had been disallowed. These letters were sent to businesses that did not meet the basic eligibility criteria. To further assist businesses, a withdrawal option was introduced in October, allowing certain employers to withdraw their ERC claims, avoiding future repayment, interest, and penalties. This option has already seen millions in ERC claims being withdrawn.

In September, the IRS implemented a moratorium on processing new ERC claims, set to last until early 2024. No new claims will be reviewed or processed during this period.

Key Details of the Disclosure Program

Interested businesses must apply for the ERC Voluntary Disclosure Program by March 22, 2024. If accepted, they will need to repay only 80% of the credit they received. The IRS will not charge interest or penalties on these repayments. Any interest paid on the ERC refund claim does not need to be repaid.

For businesses unable to repay the credit in full, there may be an option for an installment agreement on a case-by-case basis. However, entering into such an agreement without repaying the required 80% upfront will result in penalties and interest.

The IRS chose the 80% repayment figure to accommodate businesses that were lured into making questionable claims by unscrupulous preparers who often took fees of at least 20%, leaving businesses without the full credit.

Disclosure Requirements

As part of the application process, businesses must provide the IRS with information about advisors or tax preparers who advised or assisted with their ERC claims. This information will be used to identify patterns of abuse and ensure promoters are held accountable.

Eligibility

Businesses that have already received the ERC but aren't entitled to it can apply for the program if they meet certain criteria:

  • Not under criminal investigation
  • Not under an IRS employment tax examination
  • Not received an IRS notice and demand for repayment of the ERC
  • The IRS has not received noncompliance information from a third party

How to Apply

To apply, businesses must complete Form 15434, "Application for Employee Retention Credit Voluntary Disclosure Program," available on IRS.gov. The form must be submitted using the IRS Document Upload Tool. Employers who outsource payroll must have the third party file Form 15434.

Next Steps

Once accepted into the program, an IRS employee will review the application and answer any questions. If approved, businesses will receive a closing agreement and will need to repay 80% of the ERC received using the Electronic Federal Tax Payment System (EFTPS). For those unable to pay in full, an installment agreement may be an option, but it comes with penalties and interest.

Ongoing Efforts

The ERC Voluntary Disclosure Program is just one step in the IRS's ongoing efforts to combat ERC fraud. The IRS is intensifying audits and investigations into dubious claims and urging businesses to review ERC requirements and consult with tax professionals to ensure compliance.

Conclusion

The ERC Voluntary Disclosure Program offers a valuable opportunity for businesses to correct their claims, avoid penalties, and promote tax compliance. Take action before March 22, 2024, to benefit from this initiative and protect your financial interests.

Stay tuned for more updates on tax regulations and compliance.  www.proponotaxresolution.com


Navigating the Employee Retention Credit (ERC) Minefield

In 2020, as a part of the CARES Act, the U.S. government introduced the Employee Retention Credit (ERC), a vital tax relief measure to counter the economic impact of the COVID-19 pandemic. Aimed at supporting businesses that kept paying their employees during this challenging period, the ERC offered a refundable tax credit on wages paid between March 12, 2020, and January 1, 2022. Businesses were eligible to claim this credit on their quarterly employment tax returns, providing much-needed financial relief during a time of unprecedented hardship.

However, the well-intentioned ERC soon became a target for abuse. Misled often by aggressive marketing tactics, some businesses filed claims without fully meeting the eligibility criteria, leading to a substantial number of improper claims. Recognizing this issue, the IRS implemented a moratorium on processing new ERC claims from September 14, 2023, allowing them time to conduct thorough compliance reviews and protect legitimate businesses from the consequences of fraudulent claims.

The IRS's response didn't stop there. More than 20,000 letters have been sent out to notify taxpayers of disallowed ERC claims, focusing particularly on entities that either didn't exist or lacked paid employees during the eligibility period. This action is part of a larger effort to maintain the integrity of the ERC and includes programs like special withdrawal options for pending claims and a voluntary disclosure program for those who wish to rectify their situation and avoid future IRS action.

Amidst this intensified scrutiny, many taxpayers and business owners find themselves overwhelmed and uncertain. This is where Propono steps in, offering expert tax resolution and representation services. Our team is well-versed in the complexities of the ERC and is ready to assist you, whether you're disputing a claim, seeking guidance on compliance, or facing an audit.

If you've inadvertently filed an inaccurate ERC claim or are unsure about your claim's accuracy, it's crucial to take proactive steps. Propono can assist you in reviewing your situation and, if necessary, in withdrawing your claim before it's processed by the IRS. This proactive step can prevent future repayments, interest, and penalties, offering a vital lifeline for businesses that may have been misled into filing ineligible claims.

For example,  ABC Tech, a small software development company, faced significant financial challenges during the COVID-19 pandemic. With a reduction in client contracts and revenue, the company looked for ways to support its workforce. ABC Tech's owner heard about the Employee Retention Credit and believed it could provide the needed relief.  In 2021, ABC Tech filed for the ERC, claiming a credit of $50,000. The claim was based on the wages paid to its ten employees during the pandemic. The company included this credit in its quarterly employment tax return, expecting a refund from the IRS.

However, upon review, the IRS denied the ERC claim made by ABC Tech. The IRS investigation found that although ABC Tech did experience a decrease in business, it did not meet the required threshold of a "significant decline in gross receipts" as outlined in the ERC guidelines. Additionally, the IRS discovered that ABC Tech had received a Paycheck Protection Program (PPP) loan and used it to cover the same payroll costs for which they claimed the ERC. Since double-dipping into both relief programs for the same expenses was not permitted, ABC Tech's ERC claim was deemed ineligible.

As a result of the denial, ABC Tech was required to repay the $50,000 credit it had claimed, along with potential penalties and interest. The company also faced additional scrutiny from the IRS for future tax filings.

This example highlights the importance of understanding the specific requirements and guidelines of the ERC program and ensuring that all criteria are met before making a claim. It also underscores the need for accurate record-keeping and possibly seeking advice from a tax professional when navigating these complex tax relief programs.

The landscape of ERC claims has become more challenging than ever, but with Propono's guidance and representation, you can navigate these challenges confidently. We're here to ensure that your business's financial health is safeguarded and that your tax obligations are managed successfully.

For anyone navigating these turbulent waters, remember: the right advice and representation are key to staying compliant and managing your tax obligations effectively. Trust in Propono's expertise to guide you through these complex times. Contact us today for expert assistance with your ERC and other tax-related concerns.


Divorce and Taxes

Divorce is sticky and never fun.

In a complex Virginia divorce case, a stay-at-home mother faced the daunting challenge of understanding her husband's business finances. Without this knowledge, she was at a clear disadvantage. To remedy this, she sought the expertise of Cheryl B. Hyder, a forensic accountant. Hyder's intervention was a game-changer. She not only unearthed vital financial information but also demystified it for the layperson. Her skill in making sense of intricate financial records became a key factor in achieving a fair division of assets in court.

Cheryl B. Hyder's journey into forensic accounting is rooted in her passion for clarifying financial complexities. With a solid background in tax, she shifted her focus to forensic accounting in the 1990s. Hyder's knack for problem-solving goes beyond the financial realm, as evidenced by her volunteer work with a pit bull rescue organization, showcasing her diverse set of interests and commitment to community service.

Forensic accountants like Hyder are increasingly essential in various sectors, not just in personal disputes. With over 62,000 Certified Fraud Examiners worldwide, a number that has grown by 18% since 2018, their expertise is sought after in a range of scenarios. They engage in tasks such as business valuation, tracking assets in offshore accounts, dissecting financial frauds, and even tracing cryptocurrency transactions linked to these frauds. Their skills are indispensable in unraveling the web of complex financial transactions.

High-profile divorce cases often highlight the significance of forensic accountants. In the notable divorce of actor Kevin Costner, forensic accountants played a pivotal role. They meticulously analyzed detailed financial records, from lavish expenditures to concealed assets, providing insights that heavily influenced court decisions regarding child support and legal fees.

The meticulous nature of forensic accounting involves scrutinizing every financial detail, no matter how minor. This thorough approach is vital not only in divorce cases but also in corporate disputes and fraud investigations. By identifying specific spending patterns, forensic accountants can uncover hidden income streams or provide evidence of fraudulent activities.

A striking example of this was seen in a Florida divorce case, where forensic accountants uncovered unauthorized transfers from an inherited estate, demonstrating their critical role in exposing financial malfeasance. Such detailed investigations can transform legal disputes, with the findings often pushing parties towards settlement or arbitration.

The growing complexity of financial transactions in legal disputes, especially in cases involving businesses or international assets, underscores the increasing importance of forensic accountants. Their ability to decode financial intricacies is not merely a mechanism for legal resolution but often serves as a catalyst for reaching equitable settlements. In a world where financial dealings are ever more intricate, the role of forensic accountants in providing clarity and fairness cannot be overstated.