Tax Attorney & Business Planning
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Our Tax and Business Planning Services:
Creating a business involves many considerations that should be addressed before any final decision is reached. Variables to consider includes preferred tax treatment, number of owners, future plans of the business, liability protection, etc. Please also note that the new tax law, the Tax Cuts and Jobs Act, signed into law on December 22, 2017 may affect your choice of entity decision. We can work with your CPA to ensure a streamlined process between creation and operational maintenance such as bookkeeping and tax preparation.
From business as usual to capital expansions, we can assist in all phases of business and tax planning. We can also look at your tax footprint and try to find ways to limit your current or future tax liability through alternative planning engagements. Planning any engagement from formation to dissolution involves drafting. Some attorneys use forms that are not unique to each client, but this makes little sense as each engagement is different. Therefore, it is important to hire a transactional attorney with an eye for the details and a solid understanding of the business and tax underpinnings. Often this involves a knowledge of what could happen and anticipating these contingencies is what separates the true transactional attorneys from the attorneys who use boiler plate forms. We draft an array of documents including resolutions, partnership agreements, membership agreements, and by-laws to name a few, and of course, we dive into the details.
Most taxpayers fear the audit. Yes we said it…that profane five letter word. However, most tax controversies do not stem from an audit—most are the result of self-assessment. This means that a taxpayer files his or her return and recognizes that a tax is due but is unable to pay it (currently or indefinitely) and wishes to work out a deal with the IRS. If you owe less than $50,000 for individuals (or $25,000 for businesses), you can apply for a payment plan online. If you owe more, the process is a little more complex. If you would like to negotiate a reduced tax obligation, there are options available, but the time and money expended may not be worth the reduced tax obligation. We are happy to discuss these options with you. The advice we give taxpayers when dealing with the IRS is this: be very patient, do not expect an answer quickly, and try to remember that the agents have a difficult job—dealing with irate taxpayers and the bureaucratic limitations placed on their position. We adhere to the same principles when we advocate for a client.
If an audit has occurred, and you are unhappy with your outcome, we are licensed to represent clients in administrative appeals and in Tax Court, should the need arise.
In our practice, many general questions come up time and time again. Some are listed here. The questions and answers are admittedly simplified; there are likely many wrinkles to consider, namely your unique circumstances.
Tax Planning FAQs
There is a common confusion with these two terms. Tax evasion is illegal, but tax avoidance is not. Tax evasion involves a willful affirmative action to avoid paying taxes when a tax obligation exists. Consequences of tax evasion can include fines, penalties and imprisonment. Tax avoidance is, simply stated, locating and utilizing legal loopholes to reduce your tax burden. The following quote from Judge Learned Hand summarizes tax avoidance beautifully “Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.” Gregory v. Helvering, 69 F.2d 809, 810 (2d Cir. 1934). At TLC Law, we are in the business of tax avoidance; we can look at your tax footprint and attempt to find legal ways to reduce your tax burden.
Everyone’s tax situation is a little different, and the new tax law does little to simplify or provide clear cut answers. For the most part, the new law will not go into effect until the 2018 tax year (although some provisions start in 2019). It is an expansive law that changes much of the tax landscape. It is on its face, business friendly. The federal income tax rates have been lowered for most businesses, but some previously allowed deductions have been repealed or reduced.
KPMG has issued a great summary of the new tax law. It can be located at https://home.kpmg.com/content/dam/kpmg/us/pdf/2017/12/tnf-new-tax-law-dec22-2017.pdf
It is important to start the conversation early with your tax advisor on how these changes will affect you. We can work jointly with your CPA to ensure your tax obligations related to this law don’t hit you in the face unexpectedly.
There are many considerations when creating a new entity. Variables to consider includes preferred tax treatment, number of owners, future plans of the business, liability protection, etc. There are many attorneys who tout their expertise in business formations, but few can also tout an extensive knowledge of tax laws and drafting all accompanying documentation. Most entities should be formed as LLCs or PLLCs. There is little reason to create any other entity. However, the new tax law may provide tax incentive to create C corporations for certain entities.
The Texas Secretary of State has helpful forms and articles on entity formation https://www.sos.state.tx.us/corp/businessstructure.shtml
S Corporations are purely a figment of tax law. You cannot create an S corporation under the Texas Secretary of State. S corporations have limitations placed on its shareholders such as all shareholders must be individuals (or estates and some trusts) and must be U.S. residents. There is also a cap at 100 shareholders. The primary benefit of electing S status is to lower payroll tax liability through reasonable compensation and receiving one level of income tax. However, an entity level tax return is required along with quarterly payroll filings. These additional administrative
burdens may not be worth the payroll tax benefits. In addition the savings on payroll tax
may not be enough to warrant a reduced deduction on qualified business income. Since an S corporation is usually either an LLC or a corporation under state law, the limited liability provisions are still intact. Forms needed to file an S election include: Form 2553 https://www.irs.gov/pub/irs-pdf/f2553.pdf and form 8832 https://www.irs.gov/pub/irs-pdf/f8832.pdf. It is very important that these forms are filled out correctly and by a tax professional. I have seen many deals go south because these forms were filed incorrectly.
- (1) a return is filed
- (2) taxpayer receives a notice of the audit
- (3) the taxpayer receives a 30-day letter outlining the decision of the revenue office (the Revenue Agent’s Report
- (4) the taxpayer receives a statutory notice of deficiency or a 90 day letter
- (5) the taxpayer goes through the administrative appeals process if desired
- (6) a decision is reached about the deficiency
- (7) assessment
- (8) collection process begins which can include wage garnishment, liens, and levies. The IRS has drafted a helpful publication on the collection process. https://www.irs.gov/pub/irs-pdf/p594.pdf
My students at SFA used to ask me this question all the time. The truth is that at the highest levels of tax planning (such as at Deloitte or PricewaterhouseCoopers), there is little difference in a tax accountant versus a tax attorney. Both are responsible for researching complicated tax issues, articulating that research in written format, and structuring complicated transactions.
However, a tax accountant cannot draft any legal documents such as a stock acquisition agreement or a partnership agreement. At the same time, tax attorneys do not usually file tax returns as malpractice insurance policies for attorneys do not usually cover tax preparation.
Outside of mega accounting and law firms in mega cities, the role of tax accountants versus tax attorneys is quite different. Tax accountants are largely responsible for preparation of all tax returns and researching some tax questions. Tax attorneys draft all legal documents and research and plan for more complicated tax issues and transactions. The ethical obligations for attorneys and accountants differ significantly. Each profession has a separate governing body for enforcing its own ethical standards. However, attorneys have an important tool that accountants do not—the attorney-client privilege.
This privilege is vital to keeping unwanted tax and other legal documents out of the hands of the IRS or any other opponent. Note that both tax accountants and tax attorneys are governed by certain ethical standards created by the IRS for tax practitioners called Circular 230. In this way, tax attorneys are very different from other attorneys in that we answer to both our state bar licensing board and the IRS for our ethical guidance and limitations.
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