2019 Year in Review: Dealing With Complex Federal Tax Issues in Virginia

Another year is in the books. As 2019 comes to a close, tax season will soon be upon us, and many people will inevitably wait until the last minute to submit their federal returns to the Internal Revenue Service (IRS).

But, while most Virginia residents know that their federal taxes are due on April 15, many do not realize that they have other tax-related obligations throughout the year. From disclosing offshore accounts to accounting for gambling proceeds so that you can report them when the time comes, Virginia tax attorney Kevin E. Thorn notes that there are various issues that taxpayers must keep in mind year-round.

During 2019, we published several articles covering some of the more-complex and more-unique aspects of complying with the Internal Revenue Code. Here is a look back at our top articles from the year:

1. Choosing the Right Type of Business Entity to Minimize Your Federal Income Tax Obligations

When forming a new business or subsidiary, should you form a C corporation, an S corporation, a limited liability company (LLC), or some type of partnership? Is it okay to operate as a sole proprietor? Answering these questions requires careful consideration of a variety of different factors, not the least of which is the impact on your federal income tax liability.

Learn more: Options for Structuring Your New Business in Virginia

2. Knowing How (and When) to Report Income and Losses from Gambling

Gambling winnings are subject to federal income tax, and certain gambling losses are eligible for itemized deductions. Casinos and race tracks are required to report winnings that exceed certain thresholds to the IRS; and, if you fail to report winnings that are reflected in a gambling establishment’s filings, you may find yourself being audited by the IRS. Good (and consistent) recordkeeping is key; and, if you don’t have the records you need to report your winnings, you should discuss your situation with a Virginia tax attorney promptly.

Learn more: How and When to Report Gambling Winnings and Losses

3. Commingling Business Expenses: Why and How to Avoid It

If you own multiple companies or a business enterprise consisting of multiple subsidiaries and affiliates, you need to be very careful to avoid commingling expenses. Commingling business expenses can have significant federal tax consequences and is generally treated as a three-way transaction between the liable business entity, the business entity that paid the expense and the business owner. If one of your companies cannot afford to pay its bills, there are more-appropriate ways to address the issue than simply having another company pay. These include executing an inter-company loan, making a formal distribution and seeking third-party financing.

Learn more: Tax Implications of Commingling Expenses from Different Businesses

4. Facing a State Income Tax Audit in Virginia

While much of our practice is devoted to federal tax matters, we represent Virginia residents and businesses in state tax matters as well. This includes audits conducted by the Virginia Department of Taxation. If you or your company is being audited by the Virginia Department of Taxation, you need to take the audit very seriously, as an adverse determination could result in substantial penalties. Although filing an appeal is an option, it is far more efficient to hire a tax lawyer to resolve the audit favorably on your behalf.

Learn more: Virginia Tax Audits: Your Rights and Responsibilities

5. Facing a Federal Income Tax Audit in Virginia

Dealing with a federal income tax audit presents unique challenges. The IRS aggressively enforces individual and corporate taxpayers’ reporting and payment obligations; and, if you have underreported or underpaid what you owe, you could be at risk for interest, penalties, liens, levies and various other penalties. In order to ensure that your liability to the IRS is no greater than necessary – and to make sure the audit does not lead to a criminal tax fraud investigation – if you are being audited by the IRS you need to work with an experienced Virginia tax attorney.

Learn more: Responding to Tax Audits: Let a Virginia Tax Lawyer Help

6. Appealing the Outcome of an IRS Audit

Let’s say the IRS audited your federal tax returns, and let’s say the audit did not go in your favor. What options do you have available?

In most cases, the next step is to file an appeal with the IRS Independent Office of Appeals (IRS Appeals). If you file your appeal in time, IRS Appeals will schedule a hearing with an IRS Appeals Officer. During the hearing, you will have the opportunity to plead your case; and, at the end, the IRS Appeals Officer will decide whether to affirm or reverse the audit determination. If the outcome of your audit is upheld, your next option is to take your case to the U.S. Tax Court.

Learn more: Virginia Tax Lawyer Kevin E. Thorn Explains the Federal Tax Appeals Process

7. Meeting Your Obligation to Report Offshore Bank Accounts to the IRS

For U.S. taxpayers who own offshore bank accounts, complying with the federal reporting obligations that apply specifically to these accounts is critically important. Federal law imposes penalties for both willful and non-willful reporting violations; and, if the IRS learns of your offshore holdings from another source (i.e. your offshore bank, which likely also has reporting obligations), it will be up to you to convince the IRS that you did not willfully withhold information about your offshore holdings.

If you failed to report your offshore holdings in 2019 or any prior year, you will need to utilize one of the IRS’s voluntary disclosure programs in order to mitigate your potential liability. Here, too, hiring an experienced Virginia tax lawyer is essential to avoiding costly mistakes.

Learn more:

• Should You Disclose Your Virginia Offshore Bank Account Now or Later?
• OVDP and Voluntary Disclosures for Virginia Residents
• Top Things to Ask a Virginia OVDP Lawyer

Schedule a Confidential Consultation With Virginia Tax Attorney Kevin E. Thorn

Kevin E. Thorn, Managing Partner of Thorn Law Group, is a nationally-recognized Virginia tax attorney. If you have questions regarding your state or federal tax obligations in Virginia, call 703-752-3752, email or contact us online to request a confidential consultation.