Purpose and Effect of IRS Tax Lien by Denver Tax Attorney

In prior articles, a tax attorney from The McGuire Law Firm has discussed Federal Tax Liens.  Such articles have been more general in nature and the law firm has received requests to provide articles on more specific issues in relation to a tax lien.  Please remember, these articles are always for informational purposes only.  The McGuire Law Firm does not provide legal services from its website, and no attorney-client relationship is created from an individual reviewing the firm’s website.  The article below has been prepared by a tax attorney to provide additional information regarding the purpose and effect of filing the Notice of Federal Tax Lien.

The Internal Revenue Service does not need to file the Notice of Federal Tax Lien to perfect the lien against a taxpayer that has a debt to the IRS.  The filing of the tax lien protects the federal government’s right of priority against other third parties.  Typically, these third parties may include a purchaser of an asset, the holder of a security interest, a mechanic’s lienor, or a judgment creditor.  See IRC Section 6323(a).  In regards to the clerk actually recording the tax lien, the court held in In re Tracey, 394 B.R. 635 (1st Circuit 2008), that the act of filing the notice of federal tax lien sufficient in terms of IRC Section 6323(a) purposes regarding personal property even when the clerk of the court failed to record the tax lien filed by the IRS.  Typically, until the IRS files the tax lien, a purchaser of property or an asset will take the asset or property free and clear from the tax lien.  Furthermore, if the IRS does not file the tax lien, the holder of a security interest, mechanics lien, and judgment lien will take priority over the IRS’ tax lien.

Under IRC Section 6323(f)(4), some states would require the notice of federal tax lien to be filed with respect to real property be indexed in order to be treated as being filed.  Indexing is required in a state whereby a deed must be indexed to be valid against a later bona fide purchaser (see Hanafy v. U.S., 991 F. Supp. 794).  If you have questions regarding the application of IRC Section 6323(f)(4) you should contact a tax attorney or tax professional in your local area.

If the IRS has filed a Notice of Federal Tax Lien against you and your assets, you have a tax debt and an overall tax matter with the Internal Revenue Service that requires immediate assistance and attention.   Such tax lien will inhibit your ability to dispose of assets and receive money or other forms of compensation.  Please feel free to contact a Denver tax attorney at The McGuire Law Firm if you have a tax issue of which you feel a tax attorney could assist you or your business with.  The McGuire Law Firm offers a free consultation to all potential clients.

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Denver Business Attorney John R McGuire

As a business attorney, John McGuire counsels small to medium sized businesses on a variety of issues and transactions.  Below is a short outline of some of the matters in which your business may be able to use the services of a business attorney.

Business Formation & Structure

The formation and structure of your business can have tax implications, liability implications, impact the sale, transfer or disposition of your business and create many other issues.  If you have questions regarding how to form or structure your business, it may help to discuss this matter with a business attorney.

Business Contracts & Negotiations

As a business operates it will inevitably enter in to business contracts & agreements and these contracts may require certain negotiations.  A business attorney can assist you in drafting these contracts and/or reviewing them so as to protect your interests, as well as advise and educate you regarding the terms of the contracts and the overall exposure from such agreements.

Tax Implications of Certain Business Transactions

A business attorney with a background in taxation maybe also be able to advise a business and the business owners as to the tax implications of a business transaction.  Most every business transaction whether it be a purchase, sale, transfer or other disposition will have some type of immediate, short term and/or long term tax impact.  Actually, if you are business owner, ask yourself the last time you entered into a business transaction and one of your primary concerns was not a tax concern or tax questions.  John McGuire holds an advanced degree in taxation known as an LL.M. and applies his knowledge in tax to his client’s business situations and transactions.

Business or Asset Acquisitions & Sales

If you are considering selling your business or buy another business, or purchasing or selling business assets, a business attorney can assist you with drafting or reviewing the proper documents, advising you of specific issues and negotiating the terms of such transaction.

The above examples are somewhat general and just a few of the ways in which a business attorney may be able to assist your business.  You can speak with a Denver business attorney at The McGuire Law Firm through a free consultation if you have questions or a matter that you feel you need assistance with.  John McGuire has prepared the video below to provide additional information, and hopes you find it useful.  Please feel free to contact The McGuire Law Firm at anytime.

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Denver IRS Tax Resolutions

If you owe taxes to the IRS or are having another dispute, there are IRS tax resolutions available to you.  The article below has been prepared by a Denver tax attorney at The McGuire Law Firm to discuss common resolutions to IRS tax issues, and a video has been prepared as well.

Many people and businesses may owe taxes to the IRS and need to resolve such debts.  Common resolutions to a tax liability would be an installment agreement, a partial payment installment agreement, an offer in compromise or having the liability placed in a non-collectible status.  Each of these resolution is discussed in more detail below.

Installment Agreement

An installment agreement is an agreement with the IRS whereby a taxpayer and the IRS agree to the taxpayer making a monthly payment on or before a certain day of each month, which will resolve the total tax debt.  Depending upon the amount of tax owed and the amount the taxpayer is willing to pay, an installment agreement may be formalized without financial disclosure.  However, after the liability exceeds a specific amount and/or the taxpayer is requesting to pay an amount less than what the IRS would want, the taxpayer would need to disclose their current financial circumstances to the IRS.  An individual would complete Form 433A and a business would complete Form 433B.  An installment agreement can be formalized with a revenue officer or through automated collections if a revenue officer is not assigned to the file.

Important facts to keep in mind regarding an installment agreement are:

1) Penalty and interest continue to accrue while you are making payments.

2) The failure to pay penalty is cut in half to .25% per month.

3) The failure to timely make a payment or make a payment in full will default the agreement.

4) The accrual of an additional tax or failure to timely file a tax return will default the agreement.

5) The IRS can still file a notice of federal tax lien.

Partial Payment Installment Agreement

A partial payment installment agreement is similar to an installment agreement except that if the taxpayer continues to make the agreements as agreed upon for the remainder of the collection statute, the tax debt will not be paid in full.  For example, say Jeff owes the IRS $175,000 and there is 5 years remaining on the IRS collection statute.  Jeff completes Form 433A and has monthly disposable income of $1,500.  Thus, if Jeff paid $1,500 per month to the IRS for 60 months, payments would only total $90,000.  The above facts apply to a partial payment installment agreement, and in addition, the IRS can and generally does request an updated financial statement from the taxpayer every 24 months.  If the updated financial statement shows an additional ability to pay, the IRS can and generally will request that the monthly payment be increased.

With the recent changes made to the IRS offer in compromise, generally if an individual would qualify for a partial payment installment agreement, they could likely qualify for the offer in compromise program and settle their tax debt.

Offer in Compromise

An Offer in Compromise can be considered a tax settlement.  The taxpayer proposes to pay an amount to the IRS that is less than the total amount of tax due in full satisfaction of the debt.  From the above example, Jeff may offer the IRS $18,000 to settle his $175,000 debt.  The offer amount is based off of the taxpayer’s ability to pay, which is determined by the taxpayer’s equity in assets and disposable income.  The taxpayer will complete the appropriate financial statement and Form 656.  The offer is submitted to the IRS Offer in Compromise Unit, and an examiner is assigned.  Usually it take anywhere from 6 to 12 months to receive a determination from the offer unit.  The offer could be accepted, rejected but a higher amount proposed, rejected because the IRS states you can full pay the debt or returned.  If the offer is returned, the taxpayer has no appeal rights.  If the offer is rejected, the taxpayer can provide additional information for consideration and has appeals rights with the IRS appeal office.

Some important facts regarding an offer are:

1) Penalty and interest continue to accrue while the offer is being reviewed

2) There is an automatic hold on IRS enforcement while the offer is being reviewed

3) The IRS collection statute is tolled (not running) while the offer is being reviewed

Currently Non-Collectible Status

Currently Non-Collectible Status is when the IRS agrees not to collect from a taxpayer because based off of the taxpayer’s equity in assets and disposable income, the taxpayer cannot pay.  Generally, if a taxpayer can be placed into non-collectible status, they could qualify for the offer in compromise program and thus may want to consider an offer to resolve their IRS debt.

There are other resolution options as well such as bankruptcy, IRS penalty abatements, innocent spouse relief and equitable relief options.  A tax attorney can analyze your current circumstances and assist you with your options.  You can speak with a Denver tax attorney by contacting the McGuire Law Firm and scheduling a free consultation.

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What is Section 1245 Property by Denver Tax Attorney

What is Section 1245 property?  The article below has been drafted by a tax attorney at The McGuire Law Firm to provide information on section 1245 property.

Section 1245 property is property that is or has been subject to an allowance for depreciation or amortization.  Gain on section 1245 property is treated as ordinary income up to the amount of depreciation allowed or allowable on the property, which will be discussed below.  Furthermore, gain recognized beyond the portion taxable as ordinary income from depreciation is considered Section 1231 gain.  The following are types of Section 1245 property:

–          Tangible and intangible personal property

–          Other tangible property (except buildings and the buildings structural components),  used for: manufacturing, production, extraction or for furnishing transportation, gas, water,  and other services; certain research facilities and facilities for bulk storage.

As stated above, section 1245 property does not include buildings and structure component.  The term building includes a house, barn, warehouse, or garage, and the term structural component includes walls, floors, windows, central A/C systems, light fixtures etc etc.  It is important to not treat a structure that is essentially machinery or equipment as a building or structural component to a building.  Furthermore, a structure that houses property used as a vital or integral part of an activity should not be treated as building or structural component if the structure is so closely related to the property’s use that the structure would likely be replaced if the property were replaced.

When the section 1245 property is sold, exchanged of involuntarily converted, the gain that is treated as ordinary income is the lesser of: the depreciation and amortization allowed or allowable on the property or the gain realized on the disposition of the property (the amount realized less the adjusted basis of the property.  The depreciation and amortization will include amounts claimed on property exchanged for or converted to your section 1245 property in an exchange such as a 1031 like kind exchange and amounts a previous owner of the section 1245 property claimed if the basis in the property is determined by referencing that person’s adjusted basis, just as for property you may have received as a gift.

Examples of some of the depreciation and amortization that must be recaptured as ordinary income are: ordinary income deductions, special depreciation claimed, amortization for items such as lease improvements, costs of acquiring a lease, Section 197 intangibles, and Section 179 elections.

As an example, say you purchased a truck for use in your business for $20,000.  You took $10,000 of depreciation and then sold the truck for $12,500.  Your adjusted basis in the truck would have been $10,000 (the $20,000 purchase price less the $10,000 in depreciation) and your amount realized would be the $12,500.  Thus, you would have $2,500 in gain that would be taxed as ordinary income.

If you have questions related to the taxation of certain assets or transactions, you can speak with a Denver tax attorney at The McGuire Law Firm.  Schedule a free consultation with a tax attorney and business attorney at The McGuire Law Firm.

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Denver IRS Bank Levy

If you owe taxes to the IRS and do not formalize or propose an agreement to resolve the back taxes, the IRS can levy your bank account.  You may have heard of an IRS bank levy when someone states, “the IRS has frozen my bank account!”  The article below has been drafted by a Denver tax attorney at The McGuire Law Firm to provide information regarding IRS bank levies.  Please feel free to contact The McGuire Law Firm to speak with a tax attorney.

First and foremost, to issue a bank levy, the IRS must have provided you with due process, which consists of a series of notices and finally, a Final Notice of Intent to Levy.  If you do not respond to the Final Notice of Intent to Levy within 30 days from the date of the notice by requesting a collection due process hearing, formalizing an agreement or proposing an agreement, you are open to IRS enforcement such as a bank levy.  When the IRS issues the levy, they will send the form (Form 668) to your bank (or banks) and your bank is required to hold all monies in the account up and to the levy amount for 21 days and then release the funds to the IRS unless the bank receives a levy release or partial release from the IRS.  For example, if you had $10,000 in your bank account and the IRS issued a bank levy in the amount of $8,000, the bank would hold $8,000 for the timeframe stated above.  If the IRS issued a bank levy for $15,000, all $10,000 in your account would then be held.  Thus, you do have 21 days to attempt to have the bank levy released or partially released.

All of that being said, how do you convince the IRS to release or partially release the bank levy?  The IRS may release the bank levy if you establish a formal agreement or can show that the bank levy is creating an economic hardship.  In terms of an economic hardship, you may be required to show that you will be unable to pay your mortgage or lease and are at risk of foreclosure or eviction, or you may have to show that you are unable to pay other everyday type living expenses.  If the IRS agrees to release the bank levy, a notice will be issued to your bank, and typically the bank will allow you access to your money within the next day, but such issue would need to be discussed with your bank.  Some banks will charge you a levy processing fee and of course even if the IRS releases the bank levy, the levy may have caused checks to bounce and often I have seen a bank levy cost a taxpayer $200-$1,000 in bank fees.  Thus, the best course of action is to never be in position where the IRS could levy your bank account!

If you have a tax debt or problem with the IRS, or any other tax questions, speak with a Denver tax attorney at The McGuire Law Firm regarding your questions and issues.

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Using the IRC 754 Election by Denver Tax Attorney

In previous articles the issue surrounding a variance in inside and outside basis has been discussed and examples provided.  Now the question arises, can the issue be fixed?  The article below has been prepared by a Denver tax attorney at The McGuire Law Firm to further this discussion and to discuss the 754 election.

In our previous example, Woody purchased his 25% interest from Terry and even though Woody receives  step up in basis to the purchase price, he will step into Terry’s shoes regarding the capital account and his share of the inside basis.  Thus, the variance & disconnect between inside an outside basis has been created.

The variance may be prevented if the partnership makes an election under IRC Section 754, which allows a partnership to adjust the inside basis of partnership property when there is the sale of a partnership interest under IRC 743 or there is a distribution of partnership property under IRC 734.

In this article, we will discuss the scenario whereby a partnership interest is sold, which will match the fact pattern we have been following whereby Terry sold his interest to Woody.

So how can IRC Section 754 help?  Under Section 743, the inside basis of partnership property is adjusted as the result of a sale of a partnership interest if a Section 754 election is made.  The partnership can increase the adjusted inside basis of its property by the excess of the purchasing partner’s outside basis in the partnership interest over such partner’s share of the partnership’s inside basis of partnership assets.

Based off of our example, when Woody purchases the interest for $350,000, his outside basis will be $350,000 and inside basis is $250,000.  If a Section 754 election is made or in effect the partnership can increase the basis of the asset by the excess of Woody’s outside basis in the interest over Woody’s  share of the inside basis.  Thus, the partnership could increase the basis of the land by $100,000 ($350,000 – $250,000).  The $100,000 should match the amount that the selling partner (Terry) recognized on the sale.  It is important to remember that the basis increase is a tax concept only and specific to Woody, the purchasing partner.

Ok, so the election has been made, what happens when the partnership now sells the land?  There will be a book gain of $400,000 because the book basis was still $800,000 and the property sold for $1.2 M.  Thus for book purposes $100,000 would be allocated to all partners and increase their capital accounts to $350,000.  When computing the partnerships tax gain, the basis in the land for tax purposes is $900,000 rather than $800,000 because of the $100,000 increase.  Thus, $300,000 of tax gain is recognized which is allocated to the three partners apart from Woody (John, Jimmy and Jeff) and no gain is allocated to Woody.  This gain will increase outside basis of the other three partners.  Thus now the partner’s all have a capital account of $350,000 and basis of $350,000.

If you have tax questions related to your partnership or business, or even individual tax questions, you can speak with a Denver tax attorney or business attorney by contacting The McGuire Law Firm.

Denver Tax Attorney on IRS Notice CP 2000

An IRS Notice CP 2000 is a Notice of Deficiency.  The notice is issued by the IRS when the IRS is proposing an additional assessment of tax.  The notice will state the items that the IRS is disagreeing with and how such change will impact (increase) your tax liability.

For example, the IRS could state on the notice that they are increasing your income by $30,000 in capital gains not reported on your 1040 and disallowing $15,000 of charitable contributions on your schedule A.  Thus, your total income has been increased by $30,000 and your itemized deductions, which will impact (increase) your taxable income will decrease by $15,000.  In addition to these changes the IRS will state the penalty amounts that you will be assessed with such increase in tax.  For example, you can be assessed an accuracy related penalty if the income you reported is “off” by a certain percentage and you can be assessed interest.

The video below has been prepared by a Denver tax attorney at The McGuire Law Firm to provide additional information regarding a CP 2000 or Notice of Deficiency.  If you have received such notice, are being audited or wish to speak with a tax attorney please contact The McGuire Law Firm to schedule a free consultation.

Example of an Inside and Outside Basis Problem Within a Parternship

In a previous article a tax attorney at The McGuire Law Firm drafted an article regarding inside and outside basis in a partnership to later further a discussion on IRC Section 754.  The article below will continue to discuss inside and outside basis and the problems or issues that can occur as we move forward with matters related to a 754 election.  The article below will assume the same facts from our July 15th article.

For now we will assume that after X has purchased A’s partnership interest JJJL LLC sells the land for $1.2 Million.  Under IRC 1001, the partnership will recognize gain in the amount of $400,000.  Because each partner has a 25% ownership interest in the partnership, each will be allocated 25% of the gain, which will be $100,000 to each partner.  This gain will increase each partner’s capital account and tax account by $100,000 and thus increase their capital account and tax basis under IRC Section 704.  Thus after the sale, the partnership has cash of $1.2 M and $200,000 in other assets totaling $1.4 M, and the partner’s all have a $350,000 basis in their capital accounts with a fair market value of $350,000.  However, Woody’s disparity between his capital account at $350,000 and outside basis of $450,000 will remain.

A problem has occurred!  When Terry sold his interest he recognized gain of $100,000 through the appreciation of the land and would have paid tax on such gain.  When the partnership sold the land, all $400,000 of appreciation in the land would trigger gain to be recognized and Woody will be taxed on $100,000 as well.  Why does this problem occur?  The problem is due to Woody’s interest being treated as an extension of Terry’s interest in the partnership.  In a vacuum, the same $100,000 is being taxed twice- once to Terry and once to Woody.  Is this not a violation of tax law and tax principles? Yes, and no, because the issue will eventually be worked out.

As an example, we will assume that a couple of years later the partnership sells the remaining assets with  a value of $200,000 and then the partnership will liquidate and distribute the $1.4 Million in cash.  Under IRC Section 704, when a partnership liquidates, it generally is required to make liquidating distributions in accordance with each partner’s positive capital account balance and thus each partner would receive $350,000.  Under IRC Section 731, when the partnership liquidates, each partner should recognize gain or loss for the difference between the amount received and their basis in the partnership.  However, the basis in the partnership is not the capital account or share of inside basis, but the outside basis of the partnership.  Thus, for John, Jimmy and Jeff these amounts are the same, but Woody has that difference in his outside and inside basis.  No gain or loss will be recognized by John, Jimmy or Jeff, but Woody will recognize a loss of $100,000 because his outside tax basis was $450,000.  Too bad for Woody that his capital gain and capital loss were recognized in separate tax years!  If Woody has not other capital gains to use the $100,000 capital loss offset, he may have to use $3,000 of the capital loss per year due to the capital loss limitation….. That could take Woody over 33 years to use such loss!

In a later article a Denver tax attorney from The McGuire Law Firm will discuss how the above issue may be able to be fixed and Section 754.  If you have tax questions or issues, speak with a Denver tax attorney by calling The McGuire Law Firm.  A free consultation is offered to all potential clients!

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Corporate Characteristics Overview by Denver Business Attorney

In a previous article we discussed the characteristics (issues to consider) of a business in general.  The article below has been drafted by a Denver business attorney at The McGuire Law Firm as an overview to the characteristics of a corporation that were mentioned in a previous article.

Corporate Formation: a corporation can only be formed by satisfying and complying with certain state statutes.  The statutes will require the filing of a document with the appropriate state agency, generally the secretary of state, which is the case in Colorado, appointing the registered agent and paying a filing fee.  Additionally, to maintain the corporate form, annual reports will need to be filed, again usually with the secretary of state.

Entity: A corporation is an entity that is separate and apart from the persons who have formed the corporation.

Liability: The corporation is liable for its contracts and actions, but the managers and shareholders of the corporation are not liable.  The limited liability of a corporation is an advantage of the corporate structure.

Ownership:  The corporation is owned by the shareholders.  A share of stock can be considered a unit of ownership in the corporation.  Corporate shares are issued by the corporation.  The shareholders who own the corporation have different rights such as voting rights to elect the directors who will manage the corporation.  Thus, shareholders do not necessarily manage the corporation, but they vote on and elect the individual that will manage the corporation.  In many respects, share ownership in a corporation measure power.  For example, if John owns 400 shares in Corporation ABC and Jeff owns 40 shares, John has ten times the votes as does Jeff and for every dollar Jeff receives in a corporate dividend distributions, John will receive ten.  This applies of course unless another corporate document reads otherwise.

Management: A corporation is managed by the board of directors.  It is possible that a shareholder and a director are the same person, but this also allows for a separation in ownership and management.

Transferability:  A shareholder can transfer stock relatively freely.  With a publicly held corporation just get online and sell your stock.  Stock held within a closely held corporation may not be as easily transferred, but can still be sold, exchanged or transferred.

Taxation: A C corporation will pay tax on corporate income whereas an S corporation will pass income through to the shareholders.  The shareholders of a C corporation will also have to pay individual income tax on the dividends they receive.

Raising Capital & Capital Needs:  All businesses, including corporations need money. A corporation can raise capital by obtaining loans and/or through selling ownership interests in the corporation.  There are advantages and disadvantages to both obtaining lending and allowing other third parties to obtain an ownership interest in the corporation.

If you have questions related to the formation, structure or taxation of a corporation please contact The McGuire Law Firm to speak with a Denver business attorney.  Whether you are long time business owner or just starting a small business, a business attorney can help you make important legal decisions that your business can benefit from as it operates and grows.

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Denver Tax Attorney John R. McGuire

John R. McGuire is a tax attorney in Denver, Colorado and the founder of The McGuire Law firm.  The McGuire Law Firm focuses primarily on tax law, IRS matters and business transactions for small to medium sized businesses.  As a tax attorney, Mr. McGuire assists clients with the following matters and issues:


–          Tax audits & disputes before the IRS

–          Tax Debts before the IRS

–          Individual Tax Planning

–          Business Tax Planning

–          The tax analysis of specific business transactions

–          Tax implications of business formations & structures

–          Tax implications of gifting assets to family and friends

Mr. McGuire has successfully represented many individual and business taxpayers before the Internal Revenue Service regarding IRS tax debts, IRS tax audits and other tax disputes.  Additionally, Mr. McGuire has worked with many businesses from their formation and structure to the sale or transfer of a business or business assets.  Of course, as Mr. McGuire works with these businesses he consults and advises the business and business owners regarding the individual & business tax implications of certain transactions and matters.  In addition to his law degree, Mr. McGuire obtained his LL.M. in taxation from the University of Denver, which is an advanced degree in taxation.  Mr. McGuire feels that such degree not only furthered his knowledge regarding tax law but benefits his clients in regards to their tax and business legal matters.

The video below will provide additional information regarding the services Mr. McGuire provides to his business and individual clients.  If you feel you have the need to speak with a tax attorney, please feel free to contact The McGuire Law Firm at anytime.  The firm allows a free consultation with a Denver tax attorney for all potential clients, and would welcome the opportunity to meet and speak with you.

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