For those who have been waiting, the course I have developed for guiding lawyers, CPAs and Enrolled Agents on how to start, build and manage an IRS collection practice is almost complete and the website and downloadable course will be available by April 15, 2009!

The course covers every aspect to creating a recession-proof business, including:

1. Why start a collection pactice?
2. The Client
3. The IRS
4. The Statute of Limitations
5. The Collection Process
6. The IRS Levy
7. Financial Guidelines
8. Installment Agreements
9. Offers In Compromise
10. The Trust Fund Recovery Penalty and Third Party Liability
11. Innocent Spouse
12. Judicial Foreclosure of IRS Liens
13. Building your practice

The best part about starting an IRS practice is it generates a tremendous business income stream year round, regardless of the economic conditions, except for when the economy is in decline, at which point the practice gets even busier! 

For more information, e-mail me at egreen@convicerpercy.com.  Otherwise, stay tuned for more product launch info!

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Attorney Eric L. Green is Of Counsel to the law firm of Convicer & Percy, LLP in Glastonbury, Connecticut (www.convicerpercy.com), where he focuses his practice in civil and criminal taxpayer representation before the IRS and state tax authorities, business planning and estate planning.  He represents clients in Western Massachusetts and all of Connecticut.  Attorney Green is currently the vice chair of the Closely held Business Tax Committee of the American Bar Association, and is on the Executive Committee of the Connecticut Bar Association’s Tax Committee.  He can be reached at egreen@convicerpercy.com.

What is an “Eggshell Audit?”

An eggshell audit is a civil audit where the representative (accountant or lawyer) becomes aware that there is potential tax fraud.  The hope is that these audits do not break and go criminal, hence the “eggshell” nature of the audit.  The goal of these audits is to satisfy the auditor without tipping them, off to the potential tax fraud.

What is a “Kovel” Accountant?

In 1961 the case of United States v. Kovel created what is now the “Kovel Accountant” doctrine, which is that an accountant working for an attorney is covered by the attorney-client privilege and any of that accountant’s work product is deemed to be the work product of the attorney and not discoverable by the Government.  As a tax attorney who focuses on taxpayer representation, once we have placed an accountant under a Kovel letter anything from that point forward is under our attorney-client privilege.  

What about the “Accountant’s privielege under Internal Revenue Code (IRC) Section 7525?

The privilege created under IRC section 7525 allows a similar privilege to accountants provided that the matter is civil and not criminal.  The accountants privilege does not extend to criminal matters, which means that the taxpayer’s accountant who learns of the taxpayer’s fraud may be subpoenaed and beome the Government’s star witness against their own client.

At Convicer & Percy, (www.convicerpercy.com) we always recommend that the accountant get us involved as early as possible.  The sooner we are involved in the case the better the result usually is for the taxpayer.

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Attorney Eric L. Green is Of Counsel to the law firm of Convicer & Percy, LLP in Glastonbury, Connecticut (www.convicerpercy.com), where he focuses his practice in civil and criminal taxpayer representation before the IRS and state tax authorities, business planning and estate planning.  He represents clients in Western Massachusetts and all of Connecticut.  Attorney Green is currently the vice chair of the Closely held Business Tax Committee of the American Bar Association, and is on the Executive Committee of the Connecticut Bar Association’s Tax Committee.  He can be reached at egreen@convicerpercy.com.

There are now several states which have either same-sex marriages or civil unions.  The federal government, however, has not only refused to follow suit but has passed the Defense of Marriage Act, also known as DOMA, which makes it legal for other states to refuse to recognize same-sex marriages and civil unions from other states.

In General, doing estate planning for same-sex couples is no different that estate planning for unmarried couples.  There are a few pitfalls that need to be considered and explained to the clients when we are doing planning for same-sex couples. 

Gifting

There is unlimited gifting between heterosexual married couples.  Same-sex couples, however, are limited to the $12,000 per person/per year rule and $1 million lifetime gifting exclusion (under current law in 2008).  This can become problematic for the same-sex couple if only one is working and paying for the household expenses, as these payments will be construed as taxable gifts to the non-working partner.

Marital Deduction

Married heterosexual couples may transfer an unlimited amount of wealth to each other when they die.  Same-sex couples, however, are limited to the estate tax exemption amount (currently $2 million).  Amounts transferred above that will be subject to the federal estate tax (the top rate of which is currently 45%).

Portability

Under DOMA, other states have no requirement to honor a civil union or same-sex marriage from another state.  This makes the protability of these arrangements questionable at best, and probably non-existent (depending upon which state the couple moves to).  The impact of this will mean that same-sex couples who can count on statutory shares in the state where they were married (or joined in a civil union) will not have this protection if they move and do not have their estate documents in place.

Planning Tips

Same-sex couples should try to do as much planning as possible to avoid the federal estate tax as well as the portability issue.  Steps the couple should take include:

1. Having updated Wills so they do not have to rely on the stautory laws of intestacy;

2. Having updated Living Wills and Health Care Proxies.  Without them their partner will most likely be removed from these decisions in favor of a family member;

3. Consider using Living Trusts to avoid probate; and

4. Consider using Irrevocable Life Insurance Trusts to reduce the taxable estate and avoid the exemption/marital deduction pitfall.

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Attorney Eric L. Green is Of Counsel to the law firm of Convicer & Percy, LLP in Glastonbury, Connecticut (www.convicerpercy.com), where he focuses his practice in civil and criminal taxpayer representation before the IRS and state tax authorities, business planning and estate planning.  Attorney Green represents taxpayers in Western Massachusetts and all of Connecticut.  Attorney Green is currently the vice chair of the Closely held Business Tax Committee of the American Bar Association, and is on the Executive Committee of the Connecticut Bar Association’s Tax Committee.  He can be reached at egreen@convicerpercy.com.

With the slow real estate market and falling housing prices, this may be the best time to do some estate planning and cash in on your home’s lower value by using a Qualified Personal Residence Trust.

What is a Qualified Personal Residence Trust?

A Qualified Personal Residence Trust, or QPRT (pronounced ‘Qupert’), is an irrevocable trust designed to hold your primary or a second residence. 

The QPRT is a trust specifically permitted by IRS regulations. The Grantor, or creator of the trust, gifts their home to the trust and retains use of the residence for a set number of years, called the “retained period.”  By retaining use of the home for a certain number of years the Grantor is entitled to a discount on their gift to reflect this retained use.

For example, if Dad transfers his $300,000 vacation home to a QPRT and retains use of the residence for ten years, Dad would have transferred the $300,000 home but would only have $165,855 of the transfer counted as a gift for gift tax purposes.  The other $135,145 reflects the value of the retained period, so is not included as a gift.  In ten years, appreciating at 3% per year, the home will be worth $403,175.  So the benefit is that in ten years the real estate will be out of Dad’s estate, Dad will have transferred $403,175 of value and future appreciation by making a gift of only $165,855.

Also remember that each individual (under current law) is allowed a $1 million lifetime gift tax exclusion for taxable gifts made.  Therefore Dad would utilize $165,855 of his $1 million exclusion and would not actually be required to pay the gift tax to the IRS (assuming he had not used up his $1 million exclusion on prior gifts).

So is there a down side to a QPRT?

During the retained period the Grantor continues to use their home just as they did before. 

If the Grantor does not survive the retained period, then the residence is added to their estate for estate tax purposes, though the amount of unified credit utilized when the gift was made is reinstated.  In our example, if Dad dies before the ten years has elapsed, the $300,000 home would be added back to his estate, however the unified credit he used when making the gift ($165,855) would be reinstated.

Assuming the Grantor survives the retained period, they will have to pay fair-market-value rent for the use of the residence to the trust, which is why this idea is often more attractive when used for second homes rather than the principal residence.

So strike now while the proverbial iron is hot (and real estate values are down!) and take advantage of all our estate tax laws have to give.
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Attorney Eric L. Green is Of Counsel to the law firm of Convicer & Percy, LLP in Glastonbury, Connecticut (www.convicerpercy.com), where he focuses his practice in civil and criminal taxpayer representation before the IRS and state tax authorities, business planning and estate planning.  Attorney Green represents taxpayers in Western Massachusetts and all of Connecticut.  Attorney Green is currently the vice chair of the Closely held Business Tax Committee of the American Bar Association, and is on the Executive Committee of the Connecticut Bar Association’s Tax Committee.  He can be reached at egreen@convicerpercy.com.

When taxpayers (or their representatives) file and offer in compromise (OIC), they have usually calculated the reasonable collection potential (RCP) based upon the taxpayer’s assets and their monthly income and expenses.  Chances are they never considered including assets the taxpayer no longer owned.

What is a “Dissipated Asset”?

At Convicer & Percy, LLP, we focus on taxpayer representation for Connecticut and Western Massachusetts.  Though Dissipated Assets are nothing new the IRS, in a renewed effort to increase collection and reduce the tax gap, are focusing more on the issue of dissipated assets when evaluating OICs.

A Dissipated Asset is an asset that was either transferred away for less than fair-market value or sold and the proceeds were used for things other than paying their federal tax liability.  This can include stocks or real estate sold years ago where the proceeds were used to pay credit card debt, state tax debts or other unsecured creditors.

When the IRS conducts their investigation, they will focus on the prior tax returns and other records to determine if there have been any transfers or sales of assets, and seek to have the proceeds included in the RCP calculation.  For most taxpayer’s, this would seem to bring their OIC to an ignominious end. 

Defending against the “Dissipated Asset” label

An asset is not dissipated if it was used for allowable living expenses. There is also a defense if the taxpayer’s business paid for the asset and the proceeds went back into the business to cover operating costs of that business.

Given how dissipated assets have become an IRS priority, at Convicer & Percy we have begun reviewing a taxpayer’s last 6 years of returns for any sales or transfers, and consider their impact on any OIC we may file. 

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Attorney Eric L. Green is Of Counsel to the law firm of Convicer & Percy, LLP in Glastonbury, Connecticut (www.convicerpercy.com), where he focuses his practice in civil and criminal taxpayer representation before the IRS and state tax authorities, business planning and estate planning.  Attorney Green represents taxpayers in Western Massachusetts and all of Connecticut.  Attorney Green is currently the vice chair of the Closely held Business Tax Committee of the American Bar Association, and is on the Executive Committee of the Connecticut Bar Association’s Tax Committee.  He can be reached at egreen@convicerpercy.com.