The Appeals mission is to settle tax disagreements without having to go to Court and a formal trial. Appeals is here to assist you if you don’t agree with a tax decision. The Office of Appeals is independent of any other IRS office and provides a venue where disagreements concerning the application of tax law can be resolved on a fair and impartial basis.

Our office represented hundreds of  clients on their appeals with the IRS. Please contact us at 562-868-6333 to see if Appeals would be the best approach for you.

Many of the different departments within IRS are responsible for making decisions concerning the application of tax law to various taxpayer issues. In some cases, agreement on these decisions, or determinations, cannot be reached. In other words, the taxpayer does not agree with the determination.

This is where Appeals comes in. Appeals is independent of any other IRS office and serves as an informal administrative forum for any taxpayer who disagrees with an IRS determination.  Appeals provides a venue where disagreements concerning the application of tax law can be resolved on a fair and impartial basis for both the taxpayer and the government. The mission of Appeals is to settle tax disagreements without having to go to the Courts and a formal trial. Make sure you discuss this appeal process with a tax professional.

What Can Appeals do for you?

Appeals is the place for you if:

• You received an IRS correspondence explaining you have the right to come to Appeals to dispute an IRS decision.
  AND
• You do not agree and are not signing an agreement form sent to you.

If you meet the above qualifiers listed above then you may be ready to request an Appeals conference or hearing.

Appeals is not for you if:

• Your only concern is that you cannot afford to pay the amount you owe.
• The correspondence you received from the IRS was a bill and there was no mention of Appeals.

If you cannot identify the requirements, or if you do not meet the conditions for coming to Appeals as explained above, please contact us at 562-868-6333 to discuss whether an Appeals is the place for you or not and how we can assist you specific situation.

Are You Ready to Request an Appeals Conference or Hearing?

Consider the following:

• If you need help in deciding whether the IRS made an incorrect decision due to misinterpreting the law, check the publications discussing your issue(s) for additional information, or refer to Tax Topics.
• If you believe the IRS did not properly apply the law due to a misunderstanding of the facts, be prepared to clarify and support your position refer to the Examination page.
• If you believe the IRS is taking an inappropriate collection action against you, or you do not agree with Collection’s denial of your offer in compromise, refer to the Collections page.

If you believe the facts used by the IRS are incorrect, then you should have records or other support available to back up your position.

Preparing a Request for Appeals

Review the letter and publication(s) that were sent to you by the IRS department making the decision. These will tell you:

• How to prepare a request for an appeal (protest)
• Where to mail the request
• When the request must be received
• What information you need to include in the request for an appeal

For specific information appealing Examination issues, refer to the Examination page.

For specific information appealing Collection issues, refer to the Collection page.

FILING A REQUEST FOR APPEALS DOES NOT STOP INTEREST AND PENALTIES FROM ACCRUING

Interest and certain penalties will continue to accrue during the Appeals process and during any subsequent Appeals to the Courts on any amount not paid. In order to stop the accrual of interest and penalties on proposed adjustments, refer to Notice 1016, How to Stop Interest. For an explanation on how to stop interest from accruing on an unpaid balance, refer to Publication 594, What You Should Know About the IRS Collection Process.

What Can You Expect from Appeals?

Appeals is independent of any other IRS office and provides a venue where disagreements concerning the application of tax law can be resolved on a fair and impartial basis for both the taxpayer and the government.

An Appeals or Settlement Officer will review the strengths and weaknesses of the issues in your case and give them a fresh look. Appeals conferences are conducted in an informal manner, by correspondence, telephone or in person. Most differences are settled in these appeals without expensive and time-consuming court trials. Appeals will consider any reason you have for disagreeing, except for moral, religious, political, constitutional, conscientious objection, or similar grounds. Our goal is to provide a forum for us to work together to resolve the tax dispute.

Our Commitments

• Explain your appeal rights and the Appeals process
• Listen to your concerns, be courteous and professional
• Be timely and responsive
• Be fair and impartial

Your Responsibilities

• Listen to our explanation of your appeal rights and the Appeals process
• Give us a statement as to how you understand the facts and the law, listing all issues with which you disagree and why.
• Give us any additional information or documentation that will be helpful to your case within a reasonable time.
• Tell us when and how you think your case should be resolved.
• Let us know the best time to contact you.

Frequently Asked Questions

Q. I sent in my appeal request/protest. How long will it be before I hear from the Appeals office?

A. This varies, depending on the type of case you are appealing and the time needed to review the file before sending your case to Appeals. Normally, you can expect to hear from an Appeals employee within 90 days after you file your appeal request.

If more than 90 days have gone by and you still haven’t heard from Appeals, you should contact the office where you sent your appeal request. They can tell you when they forwarded your case to Appeals. If they were delayed in sending your case, you would not expect to hear from Appeals until at least 90 days from that date. If more than 90 days has gone by and there is no known delay, ask that office to contact Appeals to get a time frame for when Appeals will contact you. You can also contact an Appeals Account Resolution Specialist (AARS) in Fresno Appeals at 559-456-5931. After researching the Appeals data base, they can tell you if your case has been assigned to an Appeals employee, their name and number and you can contact that employee directly.

Q. How long will it take to resolve my case once it is received in Appeals?

A. It depends on the facts and circumstances. It could take anywhere from 90 days to a year. Appeals continues to work towards reducing the time to resolve cases.  Your Appeals Officer or Settlement Officer can provide you with a more specific time frame.

Learn more about what to expect of the Appeals process in these online videos.

1. Qualified Hybrid Vehicles,
2. Qualified Fuel Cell Vehicles,
3. Qualified Alternative Fuel Motor Vehicles (QAFMV) and Heavy Hybrids, and
4. Advanced Lean-Burn Technology Vehicles.

The amount of the potential credit varies by type of vehicle and which of the four credits applies.

Internal Revenue Code Section 30B provides for the Alternative Motor Vehicle Credit. Notice 2006-9 provides procedures for manufacturers to certify passenger auto and light trucks as Qualified Hybrid Vehicles and Advance Lean Burn Vehicles and Notice 2007-46 provides procedures for heavy hybrid vehicles. Notice 2006-54 provides procedures for manufacturers to certify vehicles as Qualified Alternative Fuel Motor Vehicles (QAFMV). Notice 2008-33 provides procedures for manufacturers to certify Fuel Cell Vehicles.

Each of the four credits under the Alternative Motor Vehicle Credit is addressed individually below.

1. Qualified Hybrid Vehicles

    

   Hybrid vehicles are a combination of gasoline and electric engines. These vehicles have drive trains powered by both internal combustion engine and a rechargeable battery.

   Generally for qualified hybrids, a taxpayer may rely on the manufacturer’s certification that a specific make, model and model year vehicle qualifies for the credit and the amount of the credit for which it qualifies. Taxpayers may claim the full amount of the allowable credit up to the end of the first calendar quarter after the quarter in which the manufacturer records its sale of the 60,000th hybrid passenger automobile or light truck or advance lean burn technology motor vehicle. For the second and third calendar quarters after the quarter in which the 60,000th vehicle is sold, taxpayers may claim 50 percent of the credit. For the fourth and fifth calendar quarters, taxpayers may claim 25 percent of the credit. No credit is allowed after the fifth quarter.

2. Qualified Fuel Cell Vehicles

   A qualified fuel cell motor vehicle is a vehicle that is propelled by power derived from one or more cells which convert chemical energy directly into electricity.

   The base amount of the new qualified fuel cell motor vehicle credit varies with the gross vehicle weight rating of the vehicle. Passenger automobiles and light trucks are eligible for an additional fuel economy amount that varies with the rated fuel economy of a qualifying vehicle. A list of qualifying cell vehicles is available.

3. Qualified Alternative Fuel Motor Vehicles (QAFMV) and Heavy Hybrids

   For alternative fueled light and heavy duty vehicles to meet the requirements of QAFMV, the vehicles may be either new, original equipment installation vehicles or prior use vehicles that are converted to use an alternative fuel by an aftermarket installer. Qualified alternative fuel includes compressed natural gas, liquefied natural gas, liquefied petroleum gas (propane) and hydrogen. The vehicles may also  operate on certain mixed fuels such as liquefied propane gas or liquefied natural gas and gasoline.

4. Advanced Lean-Burn Technology Vehicles
   
   Advanced Lean-Burn Vehicles are passenger cars or light trucks with an internal combustion engine designed to operate primarily using more air than is necessary for complete combustion of the fuel.  The vehicles must also incorporate direct fuel injection technology and achieve at least 125 percent of the 2002 model year city fuel economy rating.

Available credit amounts may vary and include a base credit amount based on fuel economy compared to the 2002 model year city fuel economy rating and an additional amount based on the vehicle’s lifetime fuel savings.

The annual tax return for a partnership, corporation, S corporation, limited liability company or trust includes check boxes near the top front page just below the entity information. For the tax year in which your business ceases to exist, check the box that indicates this tax return is a final return. If there are Schedule K-1s, repeat the same procedure on the Schedule K-1.

You will also need to file returns to report disposing of business property, reporting the exchange of like-kind property, and/or changing the form of your business. If you do not have a pre-printed envelope in which to send your taxes, refer to the Where To File page for a list of addresses. Below is a list of typical actions to take when closing a business, depending on your type of business structure:

Checklist

• Make final federal tax deposits
  • Electronic Federal Tax Paying System (EFTPS)
    OR
  • Form 8109-B
• File final quarterly or annual employment tax form.
  • Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return (PDF)
  • Form 941, Employer’s Quarterly Federal Tax Return (PDF)
  • Form 943, Employer’s Annual Tax Return for Agricultural Employees (PDF)
  • Form 943-A, Agricultural Employer’s Record of Federal Tax Liability (PDF)
• Issue final wage and withholding information to employees
  • Form W-2, Wage and Tax Statement (PDF)
• Report information from W-2s issued.
  • Form W-3, Transmittal of Income and Tax Statements (PDF)
• File final tip income and allocated tips information return.
  • Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips (PDF)
• Report capital gains or losses.
  • Form 1040, U.S. Individual Income Tax Return (PDF)
  • Form 1065, U.S. Partnership Return of Income (PDF)
  • Form 1120 (Schedule D), Capital Gains and Losses (PDF)
• Report partner’s/shareholder’s shares.
  • Form 1065 (Schedule K-1), Partner’s Share of Income, Credits, Deductions, etc. (PDF)
  • Form 1120S (Schedule K-1), Shareholder’s Share of Income, Credits, Deductions, etc. (PDF)
• File final employee pension/benefit plan.
  • Form 5500, Annual Return/Report of Employee Benefit Plan (PDF)
• Issue payment information to sub-contractors.
  • Form 1099-MISC, Miscellaneous Income (PDF)
• Report information from 1099s issued.
  • Form 1096, Annual Summary and Transmittal of U.S. Information Returns (PDF)
• Report corporate dissolution or liquidation.
  • Form 966, Corporate Dissolution or Liquidation (PDF)
• Consider allowing S corporation election to terminate.
  • Form 1120S, Instructions (PDF)

• Report business asset sales.
  • Form 8594, Asset Acquisition Statement (PDF)

• Report the sale or exchange of property used in your trade or business.
  • Form 4797, Sales of Business Property (PDF)

What’s more, the maximum deduction is increasing to 9% of qualified production activity income (QPAI) in 2010. If your company is in the top 34% tax bracket, this effectively amounts to a 3.15% tax cut.

Here’s some background information. Under Section 199 of the tax code, a qualified domestic producer can currently deduct 6% of the lesser of its QPAI or its taxable income. The maximum deduction was initially doubled from 3% after 2006.

Production activities must be performed in whole, or in significant part, on U.S. soil. The annual deduction is limited to 50% of the W-2 wages.

Obviously, the deduction is fair game for traditional manufacturers of goods, but it also applies to farmers, fishermen, miners and a variety of businesses in the construction field. In fact, IRS regulations single out construction activities for special treatment. For instance, a qualified company doesn’t actually have to construct buildings. The deduction may be extended to certain taxpayers in the business of painting, drywalling and landscaping.

Similarly, the deduction is generally available to engineers and architects. As long as the services are related to construction, the costs qualify for the deduction, even if no actual construction takes place. The deduction may also be claimed by businesses conducting feasibility and environmental impact studies.

Depending on your situation, you may want to modify your business operation to qualify for the increased deduction in 2010. Don’t make any snap judgments if your business operation appears to fall outside the scope of a traditional manufacturing activity. We can make a definitive assessment of your situation. Please do not hesitate to call us and schedule a meeting for this purpose.

The built-in gains tax can blindside business owners who convert from a C corporation to an S corporation. In some cases, the conversion may not even be worth the price of admission. Nevertheless, with some advance planning from a professional certified public accountant, you may be able to minimize the impact of the built-in gains tax or discover additional tax benefits through a C corporation continue with you current business structure.

A corporation may owe income tax at regular income tax rates on a net recognized built-in gain occurring within the 10 years following a conversion to S corp status. The amount of the tax is based on the difference between the fair market value of property sold or otherwise disposed of and the basis of the property at the time of the conversion. The built-in gains tax generally applies to a corporation if:

• It was a C corporation prior to the S corporation election
• The election was made after 1986
• It has a recognized built-in gain within the 10-year recognition period; and
• The net recognized built-in gain for the tax year doesn’t exceed the net unrealized built-in in gain minus the net recognized built-in gain for prior years in the recognition period (to the extent such gains were subject to tax).

The built-in gains tax is computed by applying the highest corporate tax rate to the S corp’s built-in gain for the year. Currently, the top tax rate is 35%.

Nevertheless, the situation may not be as awful as it appears. For starters, any net operating loss (NOL) carryforward in a year in which the corporation was a C corporation may be deducted against the net recognized built-in gain of the S corporation. In addition, your firm may use capital losses carried forward from prior years to offset the built-in gains tax. Finally, excess business credits carried over from prior years may reduce the tax liability on built-in gains.

If you are contemplating a switch to S corporation status, it is important to have a professional accountant evaluate your situation and provide you with an in-depth analysis. Tax law is an extremely complicated area, especially the tax rules concerning a conversion from a C corporation to an S corporation status. Take advantage of a tax expert, like Emil Estafanous, CPA and don’t pay extra tax than what the law requires. Contact the Tax and Accounting office of Certified Public Accountant, Emil Estafanous at (562) 868-6333 and he will be glad to provide you with assistance for all your accounting and tax needs.

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• Sole Proprietorships
• Partnerships
• Corporations
• S Corporations
• Limited Liability Company (LLC)

For additional information, refer to Small Business Administration’s Choose A Structure webpage.

If you are a sole proprietor use the information in the chart below to help you determine some of the forms that you may be required to file:

References/Related Topics

• Other Useful Forms for Sole Proprietorship
• Publication 334, The Tax Guide for Small Business (for Individuals Who Use Schedule C or Schedule C-EZ)
• Publication 583, Starting a Business and Keeping Records
• Husband and Wife Businesses
  
• Distinguishing Between Self-Employed Individuals and Independent Contractors

A partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Instead, it “passes through” any profits or losses to its partners. Each partner includes his or her share of the partnership’s income or loss on his or her tax return.

Partners are not employees and should not be issued a Form W-2. The partnership must furnish copies of Schedule K-1 (Form 1065) to the partners by the date Form 1065 is required to be filed, including extensions.

If you are a partnership or a partner (individual) in a partnership, use the information in the charts below to help you determine some of the forms that you may be required to file.

Chart 1 (Partnership)

Chart 2 (Individual Partners in a Partnership)

References/Related Topics

• Election for Husband and Wife Unincorporated Businesses
• Husband and Wife Business
• IR-2005-143, IRS Extends Transition Relief to Partnerships and Pass-Thru Entities Under New Code Section
• IR-2005-146, IRS Releases Schedule M-3 for Partnerships
• Other Useful Forms for Partnerships
• Publication 541, Partnerships
• Publication 583, Starting a Business and Keeping Records

The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax. The corporation does not get a tax deduction when it distributes dividends to shareholders. Shareholders cannot deduct any loss of the corporation.

If you are a C corporation, use the information in the chart below to help you determine some of the forms you may be required to file.

Corporations that have assets of $10 million or more and file at least 250 returns annually are required to electronically file their Forms 1120 and 1120S for tax years ending on or after December 31st. For more e-file information, see References/Related Topic listed below.

References/Related Topics

• Other Useful Forms for Corporations
• S Corporations
• Publication 542, Corporations
• Publication 583, Starting a Business and Keeping Records
• Business Structures
• e-file for Business and Self-Employed Taxpayers

To qualify for S corporation status, the corporation must meet the following requirements:

• Be a domestic corporation
• Have only allowable shareholders
  • including individuals, certain trust, and estates and
  • may not include partnerships, corporations or non-resident alien shareholders
• Have no more than 100 shareholders
• Have one class of stock
• Not be an ineligible corporation i.e. certain financial institutions, insurance companies, and domestic international sales corporations.

In order to become an S corporation, the corporation must submit Form 2553 Election by a Small Business Corporation (PDF) signed by all the shareholders.

Filing Requirements:

References/Related Topics

• Compensation and Medical Insurance Issues
• Employees, Shareholders and Corporate Officers
• S Corporation Stock and Debt Basis
• Special Rules for Health Insurance Costs of 2-Percent Shareholder-Employees (IRB 2008-2 Notice 2008-1)
• Other Business Structures