Chicago Tax Help Archives - Chicago IRS Tax Attorney

What is a 1099-K Used For?

December 29, 2022 by admin

Thursday December 29, 2022 – There is much confusion about the 1099-K, no thanks to the IRS changing the reporting threshold rules – after the reporting threshold rules were changed by the American Rescue Plan in 2021. You may ask “what is 1099-K form used for?”

In short, 1099-Ks are sent to merchants, financial institutions, and other businesses that accept payments from customers through credit cards, debit cards, PayPal or other online payment systems to report gross transactions to the Internal Revenue Service (IRS).

Information Returns

1099-K is a version of what the IRS calls an information return. The IRS uses information returns to help ensure that individuals and businesses report all their income and pay the appropriate amount of taxes on that income. By requiring organizations to report certain types of payments made to individuals or businesses, the IRS can more easily track and verify the income that is being reported on tax returns. Reporting helps to improve voluntary tax compliance

Reporting Thresholds

Since 2011 the reporting threshold was:
• Gross payments that exceed $20,000, AND
• More than 200 such transactions

The American Rescue Plan of 2021 changed the reporting threshold for third-party settlement organizations, including payment apps and online third-party settlement organizations. The new threshold required these organizations to report transactions in excess of $600 per year, without regard to the number of transactions.

On December 23, 2022, the IRS announced that calendar year 2022 will be treated as a transition year for the reduced reporting threshold of $600. For calendar year 2022, third-party settlement organizations who issue Forms 1099-K are only required to report transactions where gross payments exceed $20,000 and there are more than 200 transactions. Back to the original threshold.

Conclusion:

I hope this helps clear up some of the confusion. Remember, the Sixteenth Amendment to the Constitution makes all income, “from whatever source derived” taxable. So, even if you do not receive a 1099 – all income must be reported on your tax return.

Attorney Steven A. Leahy reveals What a 1099-K is used for on Today’s Tax Talk.

https://www.irs.gov/businesses/understanding-your-form-1099-k

https://www.irs.gov/businesses/small-businesses-self-employed/a-guide-to-information-returns

https://www.marca.com/en/lifestyle/us-news/personal-finance/2022/12/29/63adb4cd22601d9b2c8b45f5.html

Steven A. Leahy is a tax attorney in Illinois. He was the host of the long-running popular Radio Show “The IRS Radio Hour” heard every Sunday evening on AM 560 The Answer. Attorney Leahy is also the author of the book “Deal With Your IRS Problems Today!” You can get a FREE copy of this important book at FreeIRSBook.com. Or Call 24/7 (312)664-6649

Attorneys Leahy & Sanan – News Review

August 19, 2022 by admin

Friday August 19, 2022 – Attorney Steven A. Leahy sits down with Attorney Nishay Sanan to discuss recent news events from a legal perspective.

Attoney Sanan is a frequent guest on the Trust Radio Network and other well known television and radio shows. He has represented high profile defendents in Federal and International “White Collar” crime cases.

Attorney Sanan has a unique view, through experience, of the federal court system, our Constituional system of government and public policy, and he shares that insight with The Trust Radio Network listeners. You won’t want to miss it.

Join Attorney Steven A. Leahy and Attorney Nishay as they explore what is behind the headlines.

Click Here to Reach Attorney Nishay Sanan

The IRS Has A Billion Dollars to Hand Out

March 9, 2017 by admin

Steven A. Leahy

The IRS Has A Billion Dollars to Hand Out

You may have heard the news that the IRS is searching for over a million tax payers to hand out more than a billion dollars. Here is what is happening. The IRS has ten years to collect delinquent taxes from taxpayer. This is referred to as the Collection Statute Expiration Date (CSED). However, if the IRS owes taxpayers refunds for tax years with unfiled tax returns, the taxpayer only has three years from the due date to collect this refund. And, if the taxpayer is also entitled to an Earned Income Tax Credit, those funds too, must be claimed within three years of the tax return due date.

If taxpayers have unfiled tax returns and it appears to the IRS there will be a tax liability, the IRS takes it upon themselves to file a Substitute for Return (SFR). The SFR is not a service, it is a penalty! They prepare your taxes in order to assess a tax – the IRS can’t collect a tax that has yet to be assessed. Generally, the SFR overstates the true tax obligation of the taxpayer. However, the IRS begins collection efforts to collect the assessed tax. It may take the IRS some years to assess the tax for an unfiled return – and the CSED does not begin until the tax is assessed. So, the IRS has additional time, from the date of assessment – not from the date the tax return is due, to collect the assessed tax.

If it appears the taxpayer has a refund due, the IRS does not complete the SFR. Therefore, a tax is never assessed, so the IRS does not calculate what your refund would be. They leave it to the taxpayer to calculate that number.

This year, 2017, tax-day is April 18th. This is the second-year tax-day has landed on April 18th rather than April 15th. The reason that is revolves around a little-known Washington DC Holiday, Emancipation Day. Here is the rule:

Generally, if a due date for performing any act for tax purposes falls on a Saturday, Sunday, or legal holiday, the act is considered to be performed timely if it is performed no later than the next day that isn’t a Saturday, Sunday, or legal holiday. The term legal holiday means any legal holiday in the District of Columbia. The calendars provided in this publication make the adjustment for Saturdays, Sundays, and legal holidays. But you must make any adjustments for statewide legal holidays, as discussed later.

Emancipation Day is a Washington DC holiday every April 16th. The holiday celebrates the DC Compensated Emancipation Act of 1862 that ended slavery in Washington DC. When April 16 falls on a Saturday, the holiday shifts to Friday. That’s why 2016 tax-day was moved to the next Monday, April 18th. This year, 2017, the holiday falls on a Sunday, so the holiday shifts to the next Monday, April 17th. And, because April 15th is a Saturday, the next day that is not a Saturday, Sunday or holiday is Tuesday April 18th.

Next year, 2018, April 15th will be on Sunday and Emancipation Day will fall on Monday Apirl 16th. Next year, tax-day will fall to Tuesday April 17th.
I have several clients with unfiled tax returns, many dating back before 2013. Several of these clients are W-2 employees, and likely have a refund due. So, we are concentrating on getting their 2013 tax returns completed and filed BEFORE Tuesday April 18, 2017 to make sure they receive credit for the refund they have coming.

If you owe the IRS for taxes pre-dating 2013, and you fail to claim your return timely, the IRS WILL NOT use the refund to offset those taxes. In this situation, Taxpayers are hit with a double whammy.

If you have unfiled tax returns dating back to 2013 – call my office today, right now! We can still complete those returns and get them filed so you can claim your refund. You should give me a call – Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.

IRS 1099-A 1099-C Confused Yet?

February 17, 2017 by admin

Steven A. Leahy

IRS 1099-A 1099-C Confused Yet?

It’s tax season. Each year, at tax time, many taxpayers receive a 1099 A or a 1099 A and have no idea how to handle them. So, many just ignore the forms and go about filing (or not filing) their tax return. This is a BIG mistake!

Form 1099 C – Cancellation of Debt – is a form used by financial institutions to report cancelled debt to the IRS. “Cancelled Debt” is debt that has been cancelled or forgiven for less than the full amount.

Form 1099 A – Acquisition or Abandonment of Secured Property – is a form used by lenders if they acquire secured property in full or partial satisfaction of a debt, or they have reason to know that the property has been abandoned. Does that make it clear? Who must file? When do you “reasonably know” the property is abandoned? Trying to decipher these definitions is the subject of many Judges’ opinions.

As the borrower, you receive these forms and must respond. But how? Often, a lender will send a 1099 A and a 1099 C. What happens then? If there are multiple borrowers, each may receive a form for the full amount. Whom must report? A borrower may receive multiple forms, if there are multiple lenders to the same piece of property. All good questions – without straight forward answers.

First, Form 1099 A. Typically, a homeowner will receive a 1099 A from a lender(s) after a piece of property is foreclosed. For tax purposes, a foreclosure is treated as a sale. The borrower must calculate capital gains or losses. Since the property wasn’t sold, there isn’t a selling price. Instead, the borrower uses the information on 1099 A as the date of sale [Box 1] and the selling price of the property. The borrower may use the fair market value [Box 4], or the outstanding balance [Box 2]. How to report the foreclosure on your tax return depends on the nature of the property (primary residence?), the state the property is located, and the purchase price.

Next, Form 1099 C. If you receive a 1099 C for a foreclosed property, you should not (but may) receive a 1099 A. Because the 1099 C has the same information as 1099 A, and also includes the additional information that the debt has been cancelled. Cancelled debt may require the borrower to report the cancelled amount as income. That’s right – you couldn’t pay the debt, but the IRS may add the cancelled amount to your gross income and require you to pay income tax on that amount. Talk about kicking you when you’re down.

The good news is, sometimes there are exceptions and often the borrower may exclude the forgiven debt from income. For example, if the debt was discharged in Title 11 Bankruptcy, if the borrower was technically insolvent for an amount greater than the forgiven debt, or if the debt was forgiven on a qualified principal residence.

All this can get VERY complicated! If you receive one or more of these forms in any tax year, I suggest you find a good tax preparer. Do not ignore the forms AND do not prepare your own return. I help people get out of the trouble caused by those you take care to this matter themselves. Get help! Here’s an idea – Call Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.

Cash is King! IRS Form 8300

January 6, 2017 by admin

Steven A. Leahy

Cash is King – IRS Form 8300

By Steven A Leahy

Recently, I received a telephone call from a business owner in his accountant’s office. They wanted some information about large cash payments the business received 18 months prior. I immediately shut the conversation down and insisted they come to my office if they wanted to discuss this matter with me. I did that because, with the accountant privy to our conversation, the conversation conflicted with the traditional doctrine of attorney-client privilege. What they were discussing possibly involved illegal activity, and not something you want to talk about in mixed company.

Federal law requires that all cash payments more than $10,000.00 must be reported to the IRS with Form 8300. In general, the law requires that anyone engaged in a trade or business – “in the course of such trade or business, receives more than $10,000.00 in cash in 1 transaction (or 2 or more related transactions)” shall file the proper cash transaction forms. If Form 8300 is required, it must be filed within 15 days after the date the cash transaction occurred. Form 8300 must include “the name, address, and TIN of the person from whom the cash was received.”

Not only must you file IRS Form 8300, you must furnish a “written statement” to each person “from whom the cash was received.” That written statement must be provided “on or before January 31 of the year following the calendar year for which [Form 8300] was required to be made.”

A transaction could be the sale of a machinery, construction work for a home owner, or repair work for a vehicle. The cash payment can be a lump sum of $10,000.00 or more; Installment payments that cause total cash received within one year of the initial payment to total more than $10,000.00, or; Previously unreported payments that cause the total cash received within 12-month period to total more than $10,000.00.

For example, let’s say a customer agrees to buy a piece of equipment for $14,000.00. He pays you $9000.00 in a cashier’s check and the balance 10 days later with $5,000.00 cash. This is a cash transaction and must be reported. You have received more than $10,000.00 cash. Because “Cash” may include cashier’s checks, bank drafts, travelers checks and money orders with a face value of $10,000.00 or less. Confused yet?

Wait, there’s more. The law also requires that you report suspicious transactions. For example, if you suspect the customer is attempting to prevent a Form 8300 from being filed – you must file Form 8300. What you must NOT do – EVER – is help the customer structure the transaction to avoid the Form 8300 reporting requirement.

Failure to file Form 8300, when required, may result in civil penalties. The penalties can amount to millions of dollars. Worse, a person may be subject to criminal penalties. The criminal penalties are generally for willful behavior, and include fines up to $100,000.00 and/or imprisonment up to 5 years, plus the cost of prosecution. The criminal penalties apply to those whom attempt to structure the transaction in such a way that would make it seem unnecessary to file Form 8300.

Receiving cash payments in a transaction can cause BIG problems. Who must file Form 8300, when that form must be filed, what constitutes cash, the transactions that trigger the requirement and the penalties that follow non-compliance are often difficult to understand. Don’t play games – get advice!

So, if you receive large cash payments, you should work with a local law firm that will work with you to stay in compliance with these complicated laws. You should give me a call – Opem Tax Resolutions & The Law Office of Steven A. Leahy, PC (312) 664-6649. Call NOW to set up your FREE Consultation.

What is a 1099-K Used For?

Attorneys Leahy & Sanan – News Review

The IRS Has A Billion Dollars to Hand Out

The IRS Has A Billion Dollars to Hand Out

IRS 1099-A 1099-C Confused Yet?

IRS 1099-A 1099-C Confused Yet?

Cash is King! IRS Form 8300

Cash is King – IRS Form 8300

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