October, 2007

Message from Nelson & Company, P.S., CPAs

Q & A ---Taxing LLCs

  Q:  I started an LLC for 2006. My taxes were about the same as 2005.
I thought LLCs didn't have to pay taxes. ...continued.
  A:  An LLC should not elect to be a Regular C Corporation. C-Corps pay tax at the corporate level. A C-Corp will cause double taxation. A partnership that owns real estate ideally should be an LLC. Using an LLC for an investment partnership is the best use of an LLC since partnerships don't pay tax on passive income. If you operate a regular business and form an LLC, we recommend if your net income exceeds $60,000, that you elect Sub-Chapter S status. You must pay yourself a reasonable salary and issue a W-2 and pay social security tax.

Certified Public Accountants



Inside This Issue....

Leading CA Company Pleads Guilty to Evasion
Two AL Women Plead Guilty to Tax Fraud
WA Man Gets One Year in Prison for Bad Return
IRS Question Corner

"Honey, this tax attorney followed me home. Can we keep him?"


Robert N. Shearburn Sr., 66, of Washougal, WA was sentenced to 12 months in prison after pleading guilty to filing a false tax return.

Shearburn admitted he had signed and filed a tax return for the year 2000 that he knew contained materially false information. Shearburn stated that he filed the U.S. Individual Income Tax Return that falsely reported his adjusted gross income was $58,806, his taxable income was $28,616 and his tax due and owing was $2,000. Shearburn admitted when he filed the 2000 tax return, he knew his income and tax due and owing far exceeded the amounts he declared. In fact, for tax years 1999 to 2001, Shearburn said his under-reported gross income was approximately $830,000, with a tax due and owing of $232,4000.

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Leading California Company
Pleads Guilty to Evasion

The owner of Oxnard, CA based Haas Automation pleaded guilty this afternoon to a federal conspiracy charge related to a scheme in which tens of million of dollars in bogus expenses were put on the company's books during a two-year period in an attempt to avoid the payment of more than $34 million in federal income taxes.

Gene Francis Haas, 54, of Camarillo, pleaded guilty to the felony charge, agreeing to serve a 24-month jail sentence.

As part of the plea agreement filed last Friday, Haas agreed to pay $34.2 million in back taxes for the years 2000 and 2001, as well as a $5 million fine. With statutory penalties and interest on the back taxes, Haas owes more than $70 million to the government.

"Tax evasion is not a victimless crime," stated Debra D. King, Special Agent in Charge of IRS Criminal Investigation in Los Angeles. "Honest, hardworking Americans pay the price when others choose to evade their tax obligations."

Two Alabama Women
Plead Guilty to Tax Fraud

Two women from Montgomery, Alabama, face significant jail time after pleading guilty to tax fraud.

Rumekia L. Sanders and Felicia Shanta Jackson, both 29, pleaded guilty to one felony count charging them with conspiring to defraud the United States.

According to the plea agreement and information, in early 2005, Sanders and Jackson were employed by a tax preparation business in Montgomery. Following the instructions of the owner of the business, they caused approximately 22 federal income tax returns to be filed with the IRS that falsely claimed refunds that substantially exceeded the actual refund, if any, to which the taxpayer was entitled.

In particular, the returns inflated the taxpayers' income in order to render the taxpayers eligible for earned income tax credit (or to entitle the taxpayer to a larger earned income tax credit). The business owner paid the defendants approximately $400 to $450 for each return they prepared and filed.

When they are sentenced later this year, Jackson and Sanders each face up to five years in prison, an order of restitution, and a fine of up to $250,000 or, if greater, twice the loss to the IRS.


Question:   What's the difference between an Installment Agreement and an Offer in Compromise?

Answer:   Good question. Both are very different programs for very different circumstances. But first, let's talk about the general.

If you're considering the Offer in Compromise program or the Installment Agreement, you clearly are in over your head in tax debt. It's a tough place to be, for sure. For that reason, the first thing you should do is consult a qualified tax professional. He or she will analyze your previous return to the penny to make sure you aren't offering to pay the IRS anymore than you owe. Oftentimes, this process alone will significantly lower your tax debt.

Once you know exactly how much you owe, you'll need to ask yourself a question: "Is this debt something I can pay off over time or is the amount so considerable that no matter how much time I have I will not be able to pay it off?"

If you believe you can settle the debt over time, you should consider the Installment Agreement. With this program, the IRS allows you to pay your debt in small installments that allow you to chip away at your tax arrears without leaving you so broke you can't enjoy life. You can think of it like a car payment - a significant but manageable monthly bill that you must account for and which, in the end, will satisfy for your debt.

On the other hand, if you know you can't pay off your debt over time - and you will have to prove this to the IRS - the Offer in Compromise could be for you. This allows you to make a settlement offer to the IRS which will eliminate your tax debt once and for all. Believe it or not, this settlement amounts to pennies on the dollar compared to your tax debt.

I deal with problems like yours every day. For a free, no-risk consultation, please call my office at 253-752-9522 or send me an E-mail at Firm@DNelsonCPAs.com. Do it today


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