Monthly Archives: February 2024

City & County of Denver Taxes

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Philip Falco
City & County of Denver Taxes

So what are these mysterious taxes? Here they are:

Sales Tax – On the purchase price for all sales and purchases of tangible personal property, etc. Return due on or before the twentieth (20 th ) day of each month for sales occurring in the preceding calendar month

Use Tax – There is levied and there shall be collected and paid a tax in the amount stated in this article, by every person exercising the taxable privilege of storing, using, distributing or consuming in the city tangible personal property, or a product or service subject to the provisions of this article, purchased at retail, for said exercise of said privilege, etc. Return due on or before the twentieth (20 th ) day of each month for sales occurring in the preceding calendar month.

Lodger’s Tax –  There is hereby levied and shall be collected and paid a tax by every person exercising the taxable privilege of purchasing lodging, etc. Return due on or before the twentieth (20 th ) day of each month for sales occurring in the preceding calendar month.

Employee Occupational Privilege Tax – There is hereby levied by the city upon and there shall be collected monthly from and paid to the manager by each employee who performs services within the city for any period of time in a calendar month for an employer, an employee’s occupational privilege tax, at the rate of five dollars and seventy-five cents ($5.75) per month for each and every month in which such employee is, for any period of time, so employed. Return due on or before the last day of each month for the taxes required to be remitted for the preceding calendar month.

Business Occupational Privilege Tax – There is hereby levied by the city upon, and there shall be collected monthly from and paid to the manager by, every person engaged in any business, trade, occupation, profession or calling of any kind having a fixed or transitory situs within the city, for any period of time in a calendar month within the city, a business occupational privilege tax in the sum of four dollars ($4.00) per month for the first owner, partner, manager or employee, and the additional sum of four dollars ($4.00) per month for each and every additional owner, partner, manager or employee who performs within the city for any period of time in a calendar month any services or other activities in the operation of such business, trade, occupation, profession or calling within the city. Return due on or before the last day of each month for taxes required to be withheld for the preceding calendar month.

Facilities Development Admissions Tax – “Admission” shall mean the right to an entrance and an occupancy of a seat or an entrance alone, of a person who, for a consideration by whatever name known, including involuntary “contributions,” uses, possesses or has the right to use or possess entrance and occupancy of a seat or an entrance alone to any entertainment, amusement, athletic event, exhibition or other production or assembly staged, produced, convened or held at or on any facility or property owned or leased by the city, including, but not limited to, the following facilities: the Denver Coliseum Complex; the Red Rocks Theatre; Phipps Auditorium; the Denver Performing Arts Complex; the National Western Stock Show Complex; and the Colorado Convention Center. Return due on or before the fifteenth day of each month for sales occurring in the preceding calendar month

Telecommunications Tax – There is levied a tax on the privilege of engaging in the telecommunications business within the city upon each business so engaged one and twelve-hundredths dollars ($1.12) for each account of such business regarding a customer for which local exchange telecommunications are provided by said business within the city. Return due on or before the twentieth (20 th ) day of each calendar month for taxes required to be remitted for the preceding calendar month.

Buyer beware!  Returns required upon sale of business; purchaser subject to lien. (a) Any taxpayer who shall sell out a business or stock of goods or shall quit business shall be required to make out a return as provided in this chapter within ten (10) days after the date the taxpayer sold out the business or stock of goods or quit business, and a successor in business shall be required to withhold sufficient of the purchase money to cover the amount of the tax due and unpaid until such time as the former owner shall produce a receipt from the manager showing that the taxes have been paid or a certificate that no taxes are due. (b) If the purchaser of a business or stock of goods shall fail to withhold the purchase money as provided in subsection (a), and the tax shall be due and unpaid after the ten (10) day period allowed, the purchaser, as well as the taxpayer, shall be personally liable for the payment of the taxes unpaid by the former owner. Likewise, anyone who takes any stock of goods or business fixtures of or used by any employer under lease, title-retaining contract or other contract arrangement, by purchase, foreclosure sale or otherwise, takes same subject to the lien for any delinquent taxes owed by such employer and shall be liable for the payment of all delinquent taxes of such prior owner, not, however, exceeding the value of the property so taken or acquired.

Mandatory Filing for LLC’s, Corporations- FinCEN

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Philip Falco
Mandatory Filing for LLC’s, Corporations- FinCEN

Quite simply, assume your entity must file a transparency report with the Financial Crimes Enforcement Network. This report resembles foreign/international transparency forms that we have been filing for years. It is part of the ongoing effort of the U.S. to reign in secret, unreported transactions.
We are authorized to file this report on your behalf if you choose to engage our firm. We will also consult and advise you as to any wrinkles in the process. Being a dual licensed CPA and Attorney firm, we are without question the best choice for this report. The first filing is the most important as it will set a precedent.
In general, the deadline to file is December 31, 2024.
If you have any concerns about past discrepancies, we can consult you. The attorney-client privilege applies.
This filing requirement was enacted under the Corporate Transparncy Act.
For more in-depth on this filing, click our permanent page dedicated to this filing Corporate/LLC Transparency Filings

Tax Compliance Check-Up

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Posted by
Philip Falco

For Individuals, Small Businesses, Corporations, Partnerships, and Limited Liability Companies

Tax Compliance Checkup-Up by Philip Falco, CPA, Juris Doctor – Honors

We have IRS e-services. We can quickly find out what is not making you or your company tax compliant.

For example, an old unfiled tax return, a quarterly filing, or an IRS Form 940 might not have been filed at some point in time. You might not even know that the IRS has the non-compliance flagged until it is too late.  We can nip this in the bud and get you in 100% compliance.  We also provide tax preparation services so we can actually prepare your unfiled returns for you.

This service can help minimize exposure to an IRS Audit, issues with Unfiled Tax Returns, and Criminal Tax indictment.

Give us a call if you would like us to do a tax check-up for you (303) 626-7000.

Innocent Spouse Relief Even for the Wealthy

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Posted by
Philip Falco

If a taxpayer prevails under the provisions of Innocent Spouse Relief, the taxpayer will be freed of that tax-liability shackle. Philip Falco, CPA, Juris Doctor provides you with Tax Tips based on the Ehrmann case and based on his insight and then discusses the requirements for Innocent Spouse Relief.  He discusses a recent tax case drafted by the United States Tax Court, Kathryn D. Ehrmann v. Commissioner of Internal Revenue, T.C. Summary Opinion 2014-96.  This is a very recent case, which is dated September 23, 2013.  This case may not be relied upon as precedent, but it is still telling of the Court’s view on Innocent Spouse Relief cases.

Tax Tips for those entering or exiting marriage (Divorce) as to Innocent Spouse Relief:

  • Consider not paying the tax in dispute,
  • Hire competent tax counsel to draft tax language in divorce decree, stipulation, or settlement agreement,
  • Consider filing your tax return using a different filing status such as separately or head of household (if qualified).
  • Before getting married, hire us to do a tax compliance checkup on your fiancé.  If you are getting married a bit older in life, this actually makes sense since you really would not know a person’s tax history.  Concealment of prior tax history is a common reason for petitions under Innocent Spouse Relief.

Innocent Spouse Relief, Equitable Relief: the catch-all

Generally, married taxpayers who file a joint Federal income tax return are jointly and severally liable for the tax reported or reportable on the return. Sec. 6013(d)(3); Butler v. Commissioner, 114 T.C. 276, 282 (2000). Section 6015, however, allows a spouse to obtain relief from joint and several liability in certain circumstances.

Section 6015(a)(1) provides that a spouse who has made a joint return may elect to seek relief from joint and several liability under subsection (b) (dealing with relief from liability for an understatement of tax with respect to a joint return). Section 6015(a)(2) provides that an eligible spouse may elect to limit that spouse’s liability for any deficiency with respect to a joint return under subsection (c) (dealing with relief from joint and several liability for taxpayers who are no longer married or who are legally separated or no longer living together). If a taxpayer does not qualify for relief under either subsection (b) or (c), the taxpayer may seek equitable relief under subsection (f).

Equitable Innocent Spouse Relief: Requirements

There are seven threshold conditions that a requesting spouse must satisfy to be eligible for relief under section 6015(f):

  1. the requesting spouse filed a joint Federal income tax return for the tax year or years for which relief is sought;
  2. the requesting spouse does not qualify for relief under section 6015(b) or (c);
  3. the claim for relief is timely filed;
  4. no assets were transferred between the spouses as part of a fraudulent scheme;
  5. the nonrequesting spouse did not transfer disqualified assets to the requesting spouse;
  6. the requesting spouse did not knowingly participate in the filing of a fraudulent joint return; and
  7. the liability from which relief is sought is attributable to an item of the nonrequesting spouse.

If a requesting spouse satisfies the threshold conditions of Rev. Proc. 2013-34, sec. 4.01, the Commissioner considers whether the requesting spouse is entitled to a streamlined determination of equitable relief under section 6015(f).  If a requesting spouse is not entitled to a streamlined determination because the requesting spouse does not satisfy all the elements in Rev. Proc. 2013-34, sec. 4.02, the requesting spouse’s request for relief may be considered using the equitable relief factors in Rev. Proc. 2013-34, sec. 4.03.

Under Rev. Proc. 2013-34, sec. 4.03, equitable relief under section 6015(f) may be granted if, taking into account all the facts and circumstances, it would be inequitable to hold the requesting spouse responsible for all or part of the liability. In making the decision, the Commissioner weighs a number of factors, including, but not limited to:

  • Marital status. Whether the requesting spouse is no longer married to the nonrequesting spouse as of the date the Service makes its determination.
  • Economic hardship. Whether the requesting spouse will suffer economic hardship if relief is not granted.
  • Knowledge or reason to know. In the case of an income tax liability that was properly reported but not paid, whether, as of the date the return was filed or the date the requesting spouse reasonably believed the return was filed, the requesting spouse knew or had reason to know that the nonrequesting spouse would not or could not pay the tax liability at that time or within a reasonable
    period of time after the filing of the return.
  • Legal obligation. Whether the requesting spouse or the nonrequesting spouse has a legal obligation to pay the outstanding Federal income tax liability.
  • Significant benefit. Whether the requesting spouse significantly benefitted from the unpaid income tax liability or understatement.
  • Compliance with income tax laws. Whether the requesting
    spouse has made a good faith effort to comply with the income tax
    laws in the taxable years following the taxable year or years to which
    the request for relief relates.
  • Mental or physical health. Whether the requesting spouse was in poor physical or mental health.

“Weighs” is highlighted because not ALL of the factors need be present, which is especially true in the Ehrmann case, as discussed below.

Economic Hardship

Kathryn D. Ehrmann v. Commissioner of Internal Revenue, T.C. Summary Opinion 2014-96, September 23, 2014, sheds light on “economic hardship”.

For purposes of this factor, an economic hardship exists if satisfaction of the tax liability, in whole or in part, will cause the requesting spouse to be unable to pay reasonable basic living expenses. Id. sec. 4.03(2)(b), 2013-43 I.R.B. at 401. The facts and circumstances considered in determining whether the requesting spouse will suffer economic hardship include:

  1. the requesting spouse’s age, employment status and history, ability to earn, and number of dependents;
  2. the amount reasonably necessary for food, clothing, housing, medical expenses, transportation, and current tax payments; and
  3. any extraordinary circumstances such as special education expenses, a medical catastrophe, or a natural disaster.
  4. In addition, consideration is given to the requesting spouse’s current income and expenses and the requesting spouse’s assets.

Ms. Ehrmann, the court found, would not suffer economic hardship if relief were denied based on the following facts:

  1. Ms. Ehrmann sought a refund of money that had already been paid. Thus, her current financial circumstances will not be adversely affected if relief is denied.  TAX TIP: Consider not paying the disputed tax.
  2. Ms. Ehrmann earned significant income from her position as a senior managing director at CB Richard Ellis. On her Form 8857 petitioner estimated that her 2011 salary and bonus would total over $300,000. In her affidavit filed with the Hennepin County District Court, petitioner disclosed that she earned nearly $340,000 in salary and bonuses for 2011. Moreover, nothing in the record suggests that Ms. Ehrmann’s earning potential has declined since then.
  3. Ms. Ehrmann  owned substantial assets, including the Wayzata and Hilton Head residences and a number of luxury vehicles.
  4. Although petitioner had no dependents, her expenses include expenses paid to support her adult children.

In the end, the Court found this factor neutral.  It is pointed out and highlighted that the tax court did not find this factor as weighing against Ms. Ehrmann.

The tax court stated, citing Rev. Proc. 2013-34, sec. 4.03(2)(b), “[t]his factor weighs in favor of relief where the requesting spouse would suffer economic hardship if relief is denied and is neutral where the requesting spouse would not suffer economic hardship if relief is denied.”

Implied by the Rev. Proc. and the tax court is that economic hardship either works in favor of the petitioning taxpayer or is a neutral factor, but NOT a factor weighing against Innocent Spouse Relief.

As such, wealth of the taxpayer seeking Innocent Spouse Relief is NOT weighed against the taxpayer.

Innocent Spouse Relief is available to the rich, which is counter intuitive in my view.

Legal Obligation

For purposes of this factor, a legal obligation is an obligation arising from a divorce decree or other legally binding agreement. Rev. Proc. 2013-34, sec. 4.03(2)(d), 2013-43 I.R.B. at 402. This factor weighs in favor of relief if the nonrequesting spouse has the sole legal obligation to pay the outstanding income tax liability pursuant to a divorce decree or agreement and weighs against relief if the requesting spouse has the sole legal obligation. Id. This factor is neutral if both spouses have a legal obligation to pay pursuant to a divorce decree or agreement or if the divorce decree or agreement is silent as to any obligation to pay the outstanding income tax liability.

In a carefully drafted divorce decree, stipulation, or settlement, an ‘Innocent Spouse’ may successfully plead this factor.  We provide tax counsel to spouses during the process of divorce. In Ehrmann, the decree was drafted in a way that could have been improved.  I won’t shed more light on this issue at this time, but feel free to contact me.  As such, the tax court found this factor neutral.

Tax Form 8857: Innocent Spouse Relief

IRS Pre-Audit Investigations

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Philip Falco

Audit “Flags” – Straight from the Internal Revenue Manual

Large Unusual Questionable Items (LUQs)

The definition of a large, unusual, or questionable item will depend on the examiner’s perception of the return as a whole and the separate items that comprise the return. Some factors to be considered when identifying LUQs are:

  1. Comparative size of the item — an expense item of $6,000.00 with total expenses of $30,000.00 would be a large item; however, if total expenses are $300,000.00, the item would not be generally considered a large item.
  2. Absolute size of the item — despite the comparability factor, size by itself may be significant. For example, a $50,000 item may be significant even though it represents a small percentage of taxable income.
  3. Inherent character of the item — although the amount of an item may be insignificant, the nature of the item may be significant; e.g., airplane expenses claimed on a plumber’s Schedule C.
  4. Evidence of intent to mislead — this may include missing schedules, incomplete schedules, misclassified entries, or obviously incorrect items on the return.
  5. Beneficial effect of the manner in which an item is reported — expenses claimed on a business schedule rather than claimed as an itemized deduction.
  6. Relationship to other items — incomplete transactions identified on the tax return. For example, the taxpayer reported sales of stock but no dividend income.
  7. Whipsaw issues — occur when there is a transaction between two parties and characteristics of the transaction will benefit one party and harm the other. Examples include alimony vs. child support, sale vs. rental/royalty, employee vs. independent contractor, gift vs. income.
  8. Missing items — consideration should be given to items which are not shown on the return but would normally appear on the returns of similar taxpayers. This applies not only to the examination of income, but also to expenses, deductions, etc., that would result in tax changes favorable to the taxpayer.

The foregoing is an excerpt from the Internal Revenue Manual.  These are some of the recommended procedures to IRS Agents when doing background work before a taxpayer is contacted.

The tax return would have been flagged already.  It is now in the hands of the scrutinizing IRS Agent.  These are some of the items the agent will look at closely before contacting the taxpayer.

Click here to read about IRS Audits including IRS letters.

Excerpt from Publication 1, Taxpayer Rights

The process of selecting a return for examination usually begins in one of two ways. First, we use computer programs to identify returns that may have incorrect amounts. These programs may be based on information returns, such as Forms 1099 and W-2, on studies of past examinations, or on certain issues identified by compliance projects. Second, we use information from outside sources that indicates that a return may have incorrect amounts. These sources may include newspapers, public records, and individuals. If we determine that the information is accurate and reliable, we may use it to select a return for examination.