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XŧŧöDÔĖDisclaimer:€Educational€Only:€This€outline€is€Educational€Only€and€no€part€of€this€presentationĪcan€be€considered€as€federal€or€state€tax€advice,€opinion,€or€position€and€is€not€intended€orĪwritten€to€be€used,€and€may€not€be€used,€for€the€purpose€of€(i)€avoiding€tax„related€penaltiesĪunder€the€internal€revenue€Code€or€(ii)€promoting,€marketing€or€recommending€to€another€partyĪany€tax„related€matters€addressed€herein,€nor€(iii)€constituting€guidance€on€any€tax€or€intellectualĪproperty€matter.Ô#†ŧöDŧXX§ #ÔōōĐ  Ŗ+ķ& ĐI.›ā  āOverview€of€Tax€Authorities€in€CaliforniaĐ ° ĐķķĖā  āA.ā ` āInternal€Revenue€ServiceĐ <Œ ĐœĖ›ā  āā ` ā1.ā ¸ āIndividual€Income€TaxĐ ’ â Đā  āā ` ā2.ā ¸ āCorporate€Income€TaxĐ Ŋ  Đā  āā ` ā3.ā ¸ āEmployment€TaxĐ č 8 Đā  āā ` ā4.ā ¸ āEstate€TaxĐ  c ĐĖā  āB.ā ` āFranchise€Tax€BoardĐ iš  ĐœĖ›ā  āā ` ā1.ā ¸ āIndividual€Income€TaxĐ ŋ  Đā  āā ` ā2.ā ¸ āCorporate€Income€TaxĐ ę:  Đā  āā ` ā3.ā ¸ āEmployment€TaxĐ e  ĐĖā  āC.ā ` āState€Board€of€€EqualizationĐ kģ ĐœĖ›ā  āā ` ā1.ā ¸ āProperty€TaxĐ Á Đā  āā ` ā2.ā ¸ āSales€&€Use€TaxĐ ė< ĐĖā  āD.ā ` āEmployment€Development€DepartmentĐ B’ ĐœĖ›ā  āā ` ā3.ā ¸ āEmployment€TaxĐ ˜č ĐĖĖōōII.ā  āEntry€Contact€Points€with€the€Federal€Tax€SystemĐ "i ĐĖķķā  āA.ā ` āFiling€of€Required€Tax€ReturnsĐ Û$+  ĐœĖ›ā  āā ` ā1.ā ¸ āIndividualĐ 1'" Đā  āā ` ā2.ā0 ¸ āCorporate€/€PartnershipĐ\(Ŧ#¸ (#¸ (# Đā  āā ` ā3.ā0 ¸ āEstateЇ)×$¸ (#¸ (# Đā  āā ` ā4.ā ¸ āTrustĐ ˛*&  Đā  āā ` ā5.ā ¸ āSeparate€F„Bar€FilingĐ Ũ+-'! Đā  āā ` ā6.ā ¸ āSecondary€Entities:€Retirement€Plans,€CharitiesĐ ° ĐĖā  āB.ā ` āTaxpayer€Contact€for€adjustments€based€upon€error€or€inconsistency.Đ V ĐœĖ›ā  āā ` ā1.ā ¸ āSometimes€results€in€a€refund€based€upon€error€in€the€return.Đ \ Ŧ Đā  āā ` ā2.ā ¸ āSuch€as€identity€mismatch€(SS#đđs€or€tax€ID#s)Đ ‡ × Đā  āā ` ā3.ā0 ¸ āIn€some€cases€IRS€seeks€an€explanation€such€as€đ đmatchingđđ€forĐ ˛  Đstate€income€tax€deductions,€requiring€simple€explanation.Đ ¸ (#¸ (# Đā  āā ` ā4.ā0 ¸ āSome€of€these€point€contact€inquiries€can€be€avoided€byĐ X  Đincluding€an€explanation€with€the€return€when€it€is€filed.€Đ ¸ (#¸ (# Đā  āā ` ā5.ā0 ¸ āInsure€that€the€explanation€provided€is€adequate€and€is€not€anĐ ^Ž  Đđ đadmissionđđ€of€a€much€larger€problem.Đ ¸ (#¸ (# ĐĖā  āC.ā ` āTaxpayer€Contact€due€to€mathematical€inconsistencies€on€the€returnĐ ß/  ĐœĖ›ā  āā ` ā1.ā ¸ āHigh€casualty€lossesĐ 5… Đā  āā ` ā2.ā ¸ āHigh€charitable€non-cash€contributionsĐ `° Đā  āā ` ā3.ā ¸ āBlatant€Unallowable€itemsĐ ‹Û Đā  āā ` ā4.ā0 ¸ āDeduction€of€medical€insurance€and€medical€payments€withoutĐ ļ Đshowing€medical€reimbursements.Đ ¸ (#¸ (# Đā  āā ` ā5.ā0 ¸ āLarge€travel€and€entertainment€expenditures.Đ \¸ (#¸ (# Đā  āā ` ā6.ā0 ¸ ā€Disproportionately€high€interest€paid€w/respect€to€taxpayersĐ 7‡ Đincome€on€return.Đ ¸ (#¸ (# Đā  āā ` ā7.ā0 ¸ āAggressive€deductions€based€upon€Use€of€"Home€Office"€re€USĐ Ũ ĐSupreme€Court€in€Commissioner€v.€Soliman,€506€U.S.€168,Ī93-1€USTC€Para€50,014,€113€SCt.€701€(1993)Đ ¸ (#¸ (# Đā  āā ` ā8.ā0 ¸ āExemptions€claimed€by€non-custodial€parents.Đ#^¸ (#¸ (# Đā  āā ` ā9.ā0 ¸ āInterest€payments€to€individuals€and€real€estate€closingĐ 9$‰ Đdeductions.Đ ¸ (#¸ (# ĐĖā  āD.ā ` āTaxpayer€Full€AuditsĐ ē' # ĐœĖ›ā  āā ` ā1.ā ¸ āAscertaining€the€scope€of€the€AuditĐ *`%  Đā  āā ` ā2.ā0 ¸ āGathering€and€placing€in€order€a€complete€set€of€books,Đ ;+‹&! Đreceipts,€financial€statements€&€balance€sheetsĐ ¸ (#¸ (# Đā  āā ` ā3.ā0 ¸ āInterview€taxpayers€to€insure€that€their€narrative€of€the€facts€andĐ Û+ Đcircumstances€fits€with€all€of€the€records.Đ ¸ (#¸ (# Đā  āā ` ā4.ā0 ¸ āWhere€records€are€missing,€or€where€other€specialĐ 1 Đcircumstances€are€present,€gather€support€and€substantiation€inĪsupport.Đ ¸ (#¸ (# Đā  āā ` ā5.ā0 ¸ āIf€the€position€on€the€return€needs€records€(such€as€depreciationĐ ˛  Đfor€prior€years,€have€such€records€at€the€ready,€in€an€isolatedĪmanner,€so€as€to€not€invite€an€expansion€of€the€audit€into€otherĪyears.Đ ¸ (#¸ (# Đā  āā ` ā6.ā0 ¸ āThe€auditor€should€be€contacted€to€limit€the€scope€of€the€auditĐ ^Ž  Đto€include€only€the€current€issues€and€only€enough€factualĪinquiry€to€support€proof€of€those€issues.Đ ¸ (#¸ (# Đā  āā ` ā7.ā0 ¸ āWhere€the€Auditor€has€requested€a€wide€ranging€set€of€papers,Đ ß/  Đthe€actual€type€and€number€of€documents€to€be€produced€shouldĪbe€negotiated,€and€agreed€upon€to€preserve€đ đcooperativeđđ€status.Đ ¸ (#¸ (# Đā  āā ` ā8.ā ¸ āOnce€the€identities€and€types€of€documents€are€agreed€uponĐ `° ĐĖā  āE.ā ` āLimitation€Periods€for€assessment€regardless€of€contact€for€a€tax€year.Đ ļ ĐœĖ›ā  āā ` ā1.ā0 ¸ ā3€years€from€later€of€(a)€return€due€date€or€(b)€date€that€returnĐ  \ Đwas€actually€filed.€(Request€extension€will€extend€the€time€forĪthe€statute€of€limitations.)€Early€Returns€are€not€considered€asĪhaving€been€filed€until€the€actual€due€date.Đ ¸ (#¸ (# Đā  āā ` ā2.ā0 ¸ āDate€of€Amended€return€does€not€affect€the€limitation€period,€itĐ ¸  Đis€based€upon€the€original€return.Đ ¸ (#¸ (# Đā  āā ` ā3.ā ¸ āAssessments€that€may€be€made€at€any€time:Đ #^ Đā  āā ` āā ¸ ā(a)ā0  āFraudulent€ReturnsĐ9$‰(#(# Đā  āā ` āā ¸ ā(b)ā0  āReturn€not€filed€at€allĐd%´ (#(# Đā  āā ` ā4.ā ¸ āAssessments€that€may€be€made€within€6€years:Đ &ß! Đā  āā ` āā ¸ ā(a)ā0  āReturns€which€omit€>25%€of€incomeĐē' #(#(# Đā  āā ` āā ¸ ā(b)ā0  āReturns€which€omit€constructive€dividend€from€foreignĐ å(5$ Đcorporation.Đ (#(# Đā  āā ` āā ¸ ā(c)ā0  āEstate€Returns€which€omit€>25%€of€gross€estateĐ;+‹&!(#(# Đā  āā ` āā ¸ ā(d)ā0  āGift€Tax€Returns€which€omit€>25%€of€giftsа(#(# Đā  āā ` āā ¸ ā(e)ā0  āExcise€Tax€Returns€which€omit€>25%€of€tax€reported.ĐÛ+(#(# ĐĖā  āā ` ā5.ā ¸ āAssessments€that€may€be€made€within€18€months:Đ 1 Đā  āā ` āā ¸ ā(a)ā0  āBy€Written€Request€for€a€prompt€assessment€for€a€non„Đ \ Ŧ Đestate€return.Đ (#(# Đā  āā ` āā ¸ ā(b)ā0  āBy€Written€Request€for€a€prompt€assessment€for€aĐ ˛  Đdissolving€corporation.Đ (#(# Đā  āā ` ā6.ā0 ¸ āLimitation€period€on€assessments€may€be€extended€byĐ X  Đagreement€between€the€taxpayer€and€the€IRS.Đ ¸ (#¸ (# ĐĖā  āā ` ā7.ā0 ¸ āRecoupment€allows€the€taxpayer€to€defeat€a€claim€where€a€sameĐ ‰Ų  Đtransaction€would€be€treated€differently€simply€because€of€theĪlimitations€period,€such€as€an€overpayment€in€an€earlier,€closedĪyear€which€can€be€used€to€offset€an€amount€owing€in€a€moreĪrecent€year,€arising€from€the€same€transaction.€In€some€casesĪrecoupment€where€there€was€more€than€one€transaction,€hasĪbeen€allowed.Đ ¸ (#¸ (# ĐĖā  āF.ā0 ` āAudits€of€other€taxpayers€which€results€in€reconciling€that€taxpayerđđsĐ á1 Đinteraction€with€you.Đ ` (#` (# ĐĖā  āG.ā0 ` āState€Tax€Audit€which€results€in€Alerting€the€Federal€Tax€AuthoritiesĐ b˛ Đof€a€change€result.Đ ` (#` (# ĐĖā  āH.ā0 ` āCollections€DivisionĐã!3` (#` (# Đā  āā ` ā1.ā0 ¸ āNormally€the€Taxpayer€will€have€gone€through€a€number€of€theĐ #^ Đfollowing€before€reaching€the€collections€division:€(1)€mailĪcontact,€(2)€audit,€(3)€proposed€assessment,€(4)€finalĪassessment,€or€(5)€Tax€CourtĐ ¸ (#¸ (# Đā  āā ` ā2.ā0 ¸ āThere€are€some€legitimate€reasons€why€a€taxpayer€might€end€upĐ ē' # Đin€Collections€first,€since€the€IRS€need€only€prove€that€a€noticeĪwas€properly€mailed€to€the€last€known€address.€€Where€aĪtaxpayer€moves€without€notifying€of€a€forwarding€address,€it€isĐ ;+‹&! Đpossible€(though€unlikely)€that€(1)€mail€contact,€(2)€auditĪnotices,€(3)€proposed€assessment€notices,€and€(4)€finalĪassessment€may€have€been€sent€but€not€actually€received€by€theĪtaxpayer.€€Upon€final€assessment,€the€collections€divisionĪbegins€taking€steps€to€collect€the€tax.Đ ¸ (#¸ (# Đā  āā ` ā3.ā0 ¸ āThe€Ô‡%ŧöDŧŧŧöDÔAutomated€collection€serviceÔ#†ŧöDŧŧ%ŧöDg-#Ԁ(ACS),€is€a€computer€drivenĐ ‡ × Đdivision€of€the€Collections€division€and€will€begin€a€series€ofĪnotices€over€several€months€threatening€a€lien€and€otherĪcollection€action.Đ ¸ (#¸ (# Đā  āā ` ā4.ā0 ¸ āIn€addition€to€the€đ đautomatic€lienđđ€on€the€taxpayers€assetsĐ 3ƒ  Đwhich€results€from€a€final€assessment,€the€collections€divisionĪwill,€once€the€notification€cycle€of€ACS€is€complete,€file€aĪformal€lien€on€real€property€of€the€taxpayer.€€The€lien€give€aĪmore€formal€notice€to€potential€purchasers€of€real€estate€that€theĪproperty€is€subject€to€the€payment€of€tax.Đ ¸ (#¸ (# Đā  āā ` ā5.ā0 ¸ āTreatment€of€businesses€versus€individual€may€differ.Đ5…¸ (#¸ (# Đā  āā ` ā6.ā0 ¸ āA€Revenue€Officer€may€typically€visit€the€property€or€theĐ `° Đtaxpayer€near€the€time€when€the€lien€is€placed,€in€order€to€getĪfurther€data€on€the€property,€its€condition,€whether€the€taxpayerĪresides€there€or€whether€there€are€renters,€and€more.Đ ¸ (#¸ (# ĐĖā  āI.ā0 ` āCollections€ProceduresĐ7‡` (#` (# ĐœĖ›ā  āā ` ā1.ā0 ¸ āCollections€actions€can€be€challenged:ЍŨ¸ (#¸ (# Đā  āā ` āā ¸ āa.ā0  āIn€the€APPEALS€division,€especially€by€the€filing€ofĐ ¸  Đform€911€and€a€showing€sufficient€to€stop€the€appeal,Īsuch€as€undue€hardship.Đ (#(# Đā  āā ` āā ¸ āb.ā0  āUpon€filing€a€petition€in€tax€court.Đ9$‰(#(# Đā  āā ` āā ¸ āc.ā0  āVery€important€that€all€of€the€lower€procedural€stepsĐ d%´  Đ(such€as€request€for€a€re„hearing)€occur€before€theĪsubsequent€step€is€taken.Đ (#(# ĐĖā  āā ` ā2.ā0 ¸ āRequirements€for€a€lien€are€found€in€IRC€sections€6321€andĐ *`%  Đ6322€and:€€(a)€assessment€of€tax,€(b)€notice€of€assessment€andĐ ;+‹&! Đdemand€for€payment€(c)€taxpayer€refusal€to€pay.Đ ¸ (#¸ (# ĐĖā  āā ` ā3.ā0 ¸ āCollections€activity€can€be€suspended€for€a€variety€of€reasons.ĐV¸ (#¸ (# Đā  āā ` āā ¸ āa.ā0  āA€tax€court€filing€or€an€Appeals€Division€request€isĐ 1 Đsupposed€to€(subject€to€bad€communications€within€theĪIRS)€stop€the€collection€actions.€€This€is€another€reasonĪthat€all€filings€should€include€a€direct€copy€to€theĪagent/officer€at€the€field€level.Đ (#(# Đā  āā ` āā ¸ āb.ā0  āIt€is€contrary€to€the€rules€to€file€any€request€merely€forĐ X  Đthe€purposes€of€delay.Đ (#(# ĐĖā  āF.ā0 ` āCriminal€Investigation€Division€Referral:Đ‰Ų ` (#` (# ĐœĖ›ā  āā ` ā1.ā0 ¸ āDirect,€first€contact€sources€may€include€business€associates,Đ ß/  Đspouses,€close€friends,€employees,€and€others.Đ ¸ (#¸ (# Đā  āā ` ā2.ā0 ¸ āThe€Criminal€Investigation€Division€Referral€might€growĐ 5… Đdirectly€from€a€civil€investigation€as€an€Audit€in€which€a€badgeĪof€fraud€or€other€criminal€wrongdoing€is€discovered.Đ ¸ (#¸ (# ĐĖ€ĖōōIII.ā  āResolution€Exits€with€the€Federal€Tax€SystemĐ  \ ĐķķĖā  āA.ā ` āFull€PaymentĐ ˜č ĐœĖ›ā  āā ` ā1.ā0 ¸ āDepending€upon€the€stage€in€the€case€in€which€this€occurs,€theĐ î > Đtaxpayer€may€be€required€to€sign€a€closing€agreement.Đ ¸ (#¸ (# Đā  āā ` ā2.ā0 ¸ āAn€ethical€problem€can€exist€where€the€practitioner€has€reasonĐ D#” Đto€believe€that€the€amount€of€tax€owing€is€significantly€greaterĪthan€that€which€the€government€is€alleging.€€The€taxpayerĪshould€always€be€the€one€to€sign€any€closing€agreements.Đ ¸ (#¸ (# ĐĖā  āB.ā ` āInstallment€PlanĐ )k$ ĐœĖ›ā  āā ` ā1.ā0 ¸ āTaxpayer€should€make€certain€that€he€can€meet€theĐ q+Á&! Đrequirements€of€making€the€amount€of€installment€payments€inĪa€timely€manner.€€In€some€cases€a€missed€payment€can€put€theĪcase€back€into€collections.Đ ¸ (#¸ (# Đā  āā ` ā2.ā0 ¸ āKeep€in€mind€that€interest€continues€on€the€unpaid€amounts€andĐ 1 Đthe€taxpayer€should€always€consider€a€lower€interest€loan€as€aĪcheaper€alternative,€if€its€available.Đ ¸ (#¸ (# ĐĖā  āC.ā ` āOffer€in€Compromise€(OIC)Đ Ũ - ĐœĖ›ā  āā ` ā1.ā0 ¸ āThe€amount€of€the€offer€is€based€upon€the€sum€of€(1)€theĐ 3ƒ  Đtaxpayers€net€worth,€and€(2)€expected€flow€of€future€earnings.Đ ¸ (#¸ (# Đā  āā ` ā2.ā0 ¸ āAs€a€result,€the€taxpayers€who€will€pay€the€fewest€đ đpennies€onĐ ‰Ų  Đthe€dollarđđ€are€the€ones€who€are€most€destitute.€€In€the€currentĪeconomy,€this€might€turn€into€a€planning€opportunity.Đ ¸ (#¸ (# Đā  āā ` ā3.ā0 ¸ āA€down„payment€of€20%€of€the€proffered€offer€is€required€withĐ  Z Đthe€offer€in€compromise.€€If€the€offer€is€rejected,€theĪgovernment€keeps€the€20%€down„payment,€and€will€continue€toĪpress€for€the€unpaid€tax.Đ ¸ (#¸ (# Đā  āā ` ā4.ā0 ¸ āThe€OIC€process€has€turned€out€to€be€not€just€a€simpleĐ ļ Đapplication€and€approval,€but€an€interactive€process€where€theĪIRS€will€intermittently€seek€additional€information€andĪdocumentation€from€the€representative;€and€the€process€mightĪtake€more€than€a€year.Đ ¸ (#¸ (# ĐĖā  āD.ā ` āIRS€Appeals€DivisionĐ ¸  ĐœĖ›ā  āā ` ā1.ā0 ¸ āWhereas€the€auditors€have€very€limited€discretion€toĐ #^ Đcompromise€the€amount€owing€for€non„mathematicalĪconsiderations€such€as€the€risks€of€appeal€and€other€practicalĪconsiderations€which€might€lessen€the€amount€owing,€theĪAppeals€Division€can€take€such€considerations€into€account.Đ ¸ (#¸ (# Đā  āā ` ā2.ā0 ¸ āAgreement€or€settlement€with€the€Appeals€Division€may€or€notĐ å(5$ Đpreclude€further€action€by€the€taxpayer,€depending€upon€theĪform€of€the€agreement.Đ;+‹&!¸ (#¸ (# Đā  āā ` ā3.ā0 ¸ āAn€agreement€with€the€Appeals€division€could€affect€tax€yearsĐ ° Đother€than€those€at€issue.Đ ¸ (#¸ (# ĐĖā  āE.ā ` āIRS€Appeals€JurisdictionĐ 1 ĐœĖ›ā  āā ` ā1.ā0 ¸ āPre„assessment:€Protest€response€to€the€30„day€letter.Ї ׸ (#¸ (# Đā  āā ` ā2.ā0 ¸ āJurisdiction€over€post„assessment€penalty€cases€which€areĐ ˛  Đsubject€to€€reasonable€cause.Đ ¸ (#¸ (# Đā  āā ` ā3.ā ¸ āEmployee€Plan€and€Exempt€Organization€cases.Đ X  Đā  āā ` ā4.ā0 ¸ āCollection€casesĐ3ƒ ¸ (#¸ (# Đā  āā ` ā5.ā ¸ āJeopardy€LeviesĐ ^Ž  Đā  āā ` ā6.ā ¸ āClaims€for€Refund€and€Settlement€of€Refund€Suits.Đ ‰Ų  Đā  āā ` ā7.ā ¸ āOffers€in€Compromise.Đ ´  ĐĖā  āF.ā ` āAlternative€Dispute€Resolution/Mediation/ArbitrationĐ  Z ĐœĖ›ā  āā ` ā1.ā0 ¸ āDisputes€with€Exam€or€AppealsĐ`°¸ (#¸ (# Đā  āā ` ā2.ā0 ¸ āEarly/Advance€referral€of€developed€but€un„agreed€issues.Đ‹Û¸ (#¸ (# ĐĖĖā  āG.ā ` āTax€Court€(Substantive€Case€Hearing)Đ  \ ĐœĖ›ā  āā ` ā1.ā0 ¸ āIn€this€forum,€somewhat€to€be€thought€of€as€an€đ đultimateđđ€IRSĐ b˛ Đdisposition,€the€case€can€be€considered€generally€withoutĪhaving€to€pay€the€tax€in€full.Đ ¸ (#¸ (# ĐœĖ›€ā  āā ` ā2.ā0 ¸ āOnce€a€tax€court€petition€is€filed,€a€recent€rule€change€requiresĐ #^ Đthe€government€to€file€an€answer,€as€is€normally€done€in€mostĪlitigation€matters.Đ ¸ (#¸ (# ĐœĖ›ā  āā ` ā3.ā0 ¸ āOnce€the€government€answers,€the€case€is€again€placed€withĐ ē' # ĐAppeals€division€for€a€further€look€at€the€hazards€of€litigationĪand€hopefully€to€settle€before€the€case€must€actually€be€heard€byĪthe€court.Đ;+‹&!¸ (#¸ (# Їā  āā ` ā4.ā0 ¸ āExhaustion€of€Remedies€is€an€important€factor€in€getting€to€andĐ ° Đgoing€beyond€Tax€Court.€€The€Taxpayer€must€take€eachĪopportunity€to€ask€for€a€hearing,€re„hearing,€and€reconsiderationĪat€each€step€leading€to€and€each€step€beyond€Tax€Court.Đ ¸ (#¸ (# ĐĖā  āH.ā ` āFederal€District€Court€(Substantive€Case€Hearing)Đ ‡ × ĐœĖ›ā  āā ` ā1.ā0 ¸ āPath€is€as€follows:€(a)€pay€the€tax,€(b)€file€a€request€for€refund,Đ Ũ - Đ(c)€request€for€refund€denied,€(d)€file€suit€in€federal€districtĪcourt€for€the€refund.Đ ¸ (#¸ (# Đā  āā ` ā2.ā0 ¸ āClaims€generally€must€be€filed€within€the€statute€of€limitationsĐ ^Ž  Đperiod,€usually€within€3€years€from€the€time€the€return€was€filedĪor€within€2€years€from€the€time€the€tax€was€paid.Đ ¸ (#¸ (# ЀĖā  āI.ā ` āFederal€Bankruptcy€with€discharge€of€taxesĐ  Z ĐœĖ›ā  āā ` ā1.ā0 ¸ āTaxes€for€taxable€years€within€three€years€of€the€date€of€theĐ `° Đbankruptcy€petition€are€not€dischargeable.Đ ¸ (#¸ (# Đā  āā ` ā2.ā0 ¸ āTax€on€returns€filed€less€than€2€years€before€filing€of€theĐ ļ Đbankruptcy€petition€are€not€dischargeable.Đ ¸ (#¸ (# Đā  āā ` ā3.ā0 ¸ āTaxes€that€have€not€been€assessed€for€at€least€240€days€are€notĐ  \ Đdischargeable.Đ ¸ (#¸ (# Đā  āā ` ā4.ā0 ¸ āTaxpayer€must€not€have€been€fraudulent€or€otherwise€attempt€toĐ b˛ Đevade€or€defeat€the€tax€(regarding€all€returns€at€issue)Đ ¸ (#¸ (# ĐĖōōIV.ā  āFranchise€Tax€Board€(FTB)€Compared€with€FederalĐ ã!3 ĐĖķķā  āA.ā0 ` āEntry€contact€points€are€very€similar€to€that€for€the€IRS,€however€a€theĐ Ĩ$õ Đlist€is€more€than€doubled€in€its€duplication:Đ ` (#` (# ĐœĖ›ā  āā ` āœ1.ā0 ¸ āFederal›€Tax€Due€Changes€are€Reported€to€the€State€and€viceĐ &(v# Đversa.Đ ¸ (#¸ (# Đā  āā ` ā2.ā0 ¸ āFederal€Audit€information€is€shared.Đ|*Ė% ¸ (#¸ (# ĐĐ §+÷&! Đā  āB.ā0 ` āMail€contact€and€Audits€by€FTB€are€similar€to€Federal€contact€andĐ ° ĐAudits.Đ ` (#` (# ĐĖā  āC.ā0 ` āFTB€and€IRS€will€often€perform€criminal€prosecutions€in€an€đ đeither/orĐ 1 Đmode€to€save€resources.€€Where€the€Federal€Government€begins€aĪCriminal€prosecution,€the€State€of€California€may€defer,€and€where€theĪState€of€California€begins€a€Criminal€prosecution,€the€FederalĪGovernment€may€defer.Đ ` (#` (# ĐĖā  āD.ā0 ` āTaxpayers€have€60€days€to€respond€to€a€notice€of€proposed€assessmentĐ 3ƒ  Đinstead€of€30€days.Đ ` (#` (# ĐĖā  āE.ā ` āWith€the€filing€of€the€FTB€protest,€an€oral€hearing€can€be€requested.Đ ´  ĐĖā  āF.ā0 ` āAfter€a€Notice€of€Action€is€issued€in€response€to€the€protest,€CaliforniaĐ  Z Đtaxpayers€have€30€days€to€file€a€written€appeal€to€the€Board€ofĪEqualization.Đ ` (#` (# ĐĖā  āG.ā0 ` āAfter€a€Board€of€Equalization€decision,€the€taxpayer€has€30€days€toĐ ļ Đpetition€for€a€re„hearing€before€the€Board€of€Equalization.€€After€re„ŧhearing€or€denial€of€the€request€for€re„hearing,€the€Boardđđs€decisionĪbecomes€final€30€days€thereafter.Đ ` (#` (# ĐĖā  āH.ā0 ` āIf€the€decision€is€not€satisfactory,€payment€of€the€tax€must€be€made,Đ Ũ Đfollowed€by€filing€a€claim€for€refund€within€the€longer€of€theĪlimitation€period€(as/if€extended)€or€within€one€year€of€theĪoverpayment.Đ ` (#` (# ĐĖā  āI.ā0 ` āAppeal€to€the€Board€of€Equalization€may€be€had€on€the€claim€upon€(a)Đ d%´  Đnotice€of€disallowance€of€the€FTB€claim€plus€90€days€or€(b)€6€monthsĪafter€the€date€of€filing€of€the€claim€of€refund.Đ ` (#` (# ĐĖā  āJ.ā0 ` āA€complaint€filed€in€Superior€Court€based€upon€the€claim€for€refundĐ *`%  Đmay€be€filed€after€the€claim€for€refund€is€filed€and€denied;€upon€theĐ ;+‹&! Đlater€of€(Rev€&€TC€sec€19083):Đ ` (#` (# ĐœĖ›ā  āā ` ā1.ā0 ¸ ā€notice€of€disallowance€of€the€FTB€claim€plus€90€days;ĐV¸ (#¸ (# Đā  āā0 ` ā2.ā0¸ ` (#` (#ā6€months€after€the€date€of€filing€of€the€claim€of€refund€(deemed€ā @# āĐ 1 Đdenial).Đ ¸ (#¸ (# Đā  āā0 ` ā3.ā0¸ ` (#` (#āone€year€from€the€date€that€the€tax€was€paid€(payment€of€tax€is€aĐ ‡ × Đpre„requisite€to€filing€a€claim€for€refund)Đ ¸ (#¸ (# Đā  āā ` ā4.ā ¸ āfour€years€from€the€last€date€prescribed€for€filing€the€return.Đ Ũ - ĐĖā  āK.ā ` ā€Investigation€Division€Referral:Đ 3ƒ  ĐœĖ›ā  āā ` ā1.ā0 ¸ āDirect,€first€contact€sources€may€include€business€associates,Đ ‰Ų  Đspouses,€close€friends,€employees,€and€others.Đ ¸ (#¸ (# Đā  āā ` ā2.ā0 ¸ āA€Criminal€Investigation€Referral€might€grow€directly€from€aĐ ß/  Đcivil€investigation€as€an€Audit€in€which€a€badge€of€fraud€orĪother€criminal€wrongdoing€is€discovered.Đ ¸ (#¸ (# ĐĖā  āL.ā0 ` āSettlement€Bureau€within€FTB€can€receive€offers€in€compromise€andĐ ‹Û Đcan€propose€settlement€based€upon€other€considerations.€€In€someĪcases,€a€federal€settlement€ratio€can€be€submitted€with€some€greaterĪlikelihood€of€acceptance€being€based€upon€the€federal€compromise€ofĪthe€federal€tax€liability.Đ ` (#` (# Đā  āĖā  āM.ā0 ` āAdditional€rights€available€for€Franchise€Income€Tax€matters.ЍŨ` (#` (# ĐœĖ›ā  āā ` ā1.ā0 ¸ āInnocent€spouse€procedures€include€participation€by€theĐ ã!3 Đappealing€and€non„appealing€spouse.Đ ¸ (#¸ (# Đā  āā ` āœ2.ōōā0 ¸ āķķAdditional›€briefing€and€evidence€procedure€were€added€inĐ 9$‰ Đ2008.Đ ¸ (#¸ (# Đā  āā ` ā3.ā0 ¸ āAppellants€are€now€held€to€have€waived€their€confidentialityĐ &ß! Đrights€when€they€appeal€from€actions€of€the€Franchise€TaxĪBoard.€(Another€stick€to€encourage€settlement).Đ ¸ (#¸ (# ĐĖĐ ;+‹&! ĐōōV.ā  āThe€California€Employment€Development€Department€(EDD)Đ ° ĐĖķķā  āA.ā0 ` āRules€for€and€collection€of€State€Employment€Taxes.ĐrÂ` (#` (# Đā  āB.ā ` āAdministers€unemployment€insurance€auditsĐ í Đā  āC.ā0 ` āMajor€activity€is€to€make€rulings€on€whether€workers€are€đ đemployeesđđĐ Č  Đor€đ đindependent€contractorsđđ.Đ ` (#` (# Đā  āD.ā ` āProcedural€IssuesĐ  n Đā  āā ` ā1.ā ¸ āEDD€audit€is€performed.Đ I ™ Đā  āā ` ā2.ā0 ¸ āWhere€the€taxpayer€is€not€in€compliance,€a€Notice€ofĐ tÄ  ĐAssessment€is€sent€to€the€taxpayer.Đ ¸ (#¸ (# Đā  āā ` ā3.ā0 ¸ āWithin€30€days€of€the€Notice€of€Assessment,€a€petition€for€re„Đ Ę  Đassessment€must€be€made€to€the€Ô‡%ŧöDŧŧŧöDÔCalifornia€UnemploymentĐ õE  ĐInsurance€Appeals€BoardÔ#†ŧöDŧŧ%ŧöDÃm#Ô.Đ p ¸ (#¸ (# Đā  āā ` ā4.ā0 ¸ āA€hearing€is€held€by€an€administrative€law€judge€appointed€byĐ K›  Đthe€board,€and€who€subsequently€€renders€a€decision.Đ ¸ (#¸ (# Đā  āā ` ā5.ā0 ¸ āAn€appeal€from€the€Administrative€law€judges€decision€to€theĐ Ąņ Đboard€directly€must€be€made€within€30€days€of€theĪadministrative€law€judgeđđs€decision.Đ ¸ (#¸ (# Đā  āā ` ā6.ā0 ¸ āSimilar€to€state€tax€matters,€an€adverse€result€at€the€board€can€beĐ "r Đhad€by€judicial€appeal€in€state€court,€but€only€after€the€taxĪamount€due€is€paid€in€full.Đ ¸ (#¸ (# Đā  āā ` ā7.ā0 ¸ āThe€procedures€in€items€1€through€6€above€can€be€circumventedĐ Ŗķ Đby€a€settlement€agreement€with€EDD.Đ ¸ (#¸ (# ĐĖĖōōVI.ā  āSales€&€Use€Tax€MattersĐ O"Ÿ ĐĖķķā  āA.ā0 ` āSales€tax€relates€to€direct€sales€occurring€within€the€state€(with€someĐ %a  Đbasis€for€argument€as€to€whether€the€seller€is€subject€to€state€salesĪjurisdiction)€while€use€taxes€are€imposed€upon€property€broughtĪwithin€the€state€which€is€purchased€elsewhere.Đ ` (#` (# ĐĖā  āB.ā ` āIn„state€sellers€are€to€have€a€Board€of€Equalization€œpermit.Đ č*8&  ЛĐ ,c'! Đā  āā ` ā1.ā0 ¸ āThe€permit€enables€sales€tax€collection€and€requires€sales€taxesĐ ° Đto€be€forwarded€to€the€Board€of€Equalization.Đ ¸ (#¸ (# Đā  āā ` ā2.ā0 ¸ āSales€tax€permits€are€also€used€to€justify€to€upstream€sellers€thatĐ V Đsales€taxes€are€not€due€upon€sales€to€re„sellers€who€show€theĪpermit.Đ ¸ (#¸ (# ĐĖā  āC.ā0 ` āSales€tax€audits€are€initiated€by€the€Board€of€Equalizationв ` (#` (# ĐœĖ›ā  āā ` ā1.ā0 ¸ āSales€tax€audits€are€an€extensive€activity€involving€(a)€salesĐ X  Đrecords,€(b)€sales€tax€returns,€(c)€federal€tax€returns,€(d)€a€checkĪof€sales€tax€permits€and€re„seller€records,€(e)€the€completeĪaccounting€books€of€the€retail€sales€business,€(f)€purchaseĪinvoices,€&€(g)€bank€records.€See,€generally€Rev€&€Tax€CodeĪsections€6051,€6012,€6201„4,€6401,€Civ.€Code€section€1656.1.),Đ ¸ (#¸ (# Đā  āā ` ā2.ā0 ¸ āAs€a€general€matter€every€retailer€is€required€to€retain€recordsĐ  Z Đfor€a€minimum€period€of€four€years€(California€Code€ofĪRegulations,€title€18,€section€1698,€&€Rev.€&€Tax.€Code€sectionĪ7053.)Đ ¸ (#¸ (# Đā  āā ` ā3.ā0 ¸ āGoing€beyond€financial€records€and€into€business€managementĐ ļ Đmatters,€the€auditor€may€(a)€attempt€to€divide€products€sold€intoĪlines€of€business€with€gross€markup€percentages€in€order€toĪdetect€inordinate€shrinkage€or€diversion€of€the€products€to€otherĪpurposes€or€disposal,€and€(b)€accounting€invoice€fraud€đ đauditĪlettersđđ€to€suppliers€and€distributees€to€verify€the€legitimacy€ofĪpurchase€orders€and€re„seller€sales.€€The€results€of€these€twoĪextraordinary€measures€make€the€process€more€subjective€thanĪmany€other€tax€inquiries.€€Đ ¸ (#¸ (# Đā  āā ` ā4.ā0 ¸ āAudits€normally€occur€for€12€consecutive€quarters.€€Such€timeĐ 9$‰ Đlength€is€required€in€order€that€markup€percentages€will€haveĪenough€data€behind€them€to€be€meaningful.€€As€a€result,Īalthough€the€use€of€ratios€and€markups€is€questionable,€someĪcompensation€is€had€by€having€the€audit€normally€cover€threeĪyears€of€operation.Đ ¸ (#¸ (# Đā  āā ` ā5.ā0 ¸ āThe€result€of€the€above€field€audit€is€a€đ đfield€audit€letterđđ€whichĐ ;+‹&! Đis€sent€to€the€taxpayer€by€the€Board€of€Equalization,€along€withĪa€determination€of€assessment.Đ ¸ (#¸ (# Đā  āā ` ā6.ā0 ¸ āTaxpayer€has€30€days€to€file€a€request€for€re„determination€toĐ V Đthe€Board€of€Equalization.Đ ¸ (#¸ (# Đā  āā ` ā7.ā0 ¸ āAfter€a€notice€of€re„determination€is€issued€by€the€Board€ofĐ \ Ŧ ĐEqualization,€if€the€tax€liability€remains,€the€tax€is€due€andĪpayable.Đ ¸ (#¸ (# Đā  āā ` ā8.ā0 ¸ āAs€is€the€case€of€tax€liability€before€the€FTB€and€EDD,€the€salesĐ Ũ - Đ&€use€€tax€liability€must€be€paid€and€a€claim€for€refund€filedĪbefore€initiating€court€action.€Đ ¸ (#¸ (# Đā  āā ` ā9.ā0 ¸ āAs€a€side€note,€the€Board€of€Equalization€has€a€đ đmanaged€auditĐ ^Ž  Đprogramđđ€which€encourages€and€enables€retailers€to€performĪself„audits€in€exchange€for€a€reduction€by€half,€of€the€interestĪrate€on€owed€tax€deficiencies.Đ ¸ (#¸ (# Đā  āā ` ā10.ā0 ¸ āAs€a€further€side€note,€the€Board€of€Equalization€also€managesĐ  Z Đsome€twenty€various€special€tax€and€fee€programs,€including:Đ ¸ (#¸ (# Đā  āā ` āā0 ¸ ā„Alcohol€Beverage€Taxā  āā p ā„Ô‡%ŧöDŧŧŧöDÔAircraft€jet€fuel€taxĐ`°¸ (#¸ (# Đā  āā ` āā0 ¸ ā„Diesel€fuel€taxā Ā āā  āā p ā„Motor€vehicle€fuel€taxĐ‹Û¸ (#¸ (# Đā  āā ` āā ¸ ā„Recycling€programsā  āā p ā„Tobacco€taxĐ ļ ĐÔ#†ŧöDŧŧ%ŧöDm‚#Ôā  āā ` ā11.ā ¸ āBOE€is€also€responsible€for:Đ á1 Đā  āā ` āā ¸ ā„Overseeing€the€practice€of€the€stateđđs€County€AssessorsĖā  āā ` āā ¸ ā„Ô‡%ŧöDŧŧŧöDÔProperty€Tax€(Veterans/Exempt€Organizations)€ExemptionĐ 7‡ Đā  āā ` āā0 ¸ ā„Intergovernmental€Property€Valuation€DisputesĐ ¸ (#¸ (# Đā  āā ` āā ¸ ā„Motor€œvehicle€›fuel€taxĖā  āā ` āā ¸ ā„Recycling€programsā  āā p ā„Tobacco€taxĐ ¸  ĐÔ#†ŧöDŧŧ%ŧöDž„#Ôā  āā ` ā12.ā ¸ āLimitation€Period:Đ ã!3 Đā  āā ` āā0 ¸ ā„€Where€return€is€filed:€€Notices€of€Determination€within€eitherĪ(1)€THREE€YEARS€AFTER€one€month€after€the€end€of€aĪquarterly€reporting€period,€or€(2)€THREE€YEARS€AFTER€theĪdate€that€the€return€was€filed.Đ ¸ (#¸ (# Đā  āā ` āā0 ¸ ā„Where€no€return€is€filed:€EIGHT€YEARS€AFTER€the€end€ofĪthe€calendar€month€following€the€quarterly€period€in€question.€Ī(Rev.€&€Tax€Code€section€6487).Đ ¸ (#¸ (# ĐĐ ;+‹&! ЇōōVII.ā  āEthical€ConsiderationsĐ ° ĐĖķķā  āA.ā ` āHusband€„€WifeĐ rÂ ĐœĖ›ā  āā ` ā1.ā0 ¸ āEspecially€where€marital€discord€may€be€present€H&W€may€beĐ Č  Đsetting€the€practitioner€up€for€a€tug€of€war€over€the€taxĪproblems.Đ ¸ (#¸ (# Đā  āā ` ā2.ā0 ¸ āAfter€the€confidential€review,€while€both€are€under€attorney„Đ I ™ Đclient€privilege,€the€practitioner€should€withdraw€unless€bothĪparties€are€on€the€same€page,€and€a€memorialization€of€sameĪshould€be€recorded€before€proceeding.Đ ¸ (#¸ (# ĐĖā  āB.ā ` āCorporations€„€Officers€&€InvestorsĐ  p  ĐœĖ›ā  āā ` ā1.ā0 ¸ āIn€the€current€economic€climate,€every€deal€is€subject€to€fallingĐ vÆ Đapart€with€blame€being€directed€everywhere.€€Always€get€someĪsignatory€direction€from€the€president/director.€Where€membersĪor€shareholders€are€concerned,€make€certain€that€if€a€consensusĪis€not€had€that€a€meeting€with€voting€is€had.Đ ¸ (#¸ (# Đā  āā ` ā2.ā0 ¸ āIf€there€are€members€who€are€threatening,€try€to€get€anĐ M Đindemnification€from€the€corporate€entity€as€a€further€sign€ofĪcommand€and€control.€€Be€very€careful€that€the€client€isĪidentified€and€their€directions€followed.Đ ¸ (#¸ (# ĐĖā  āC.ā ` āOpinionsĐ $!t ĐœĖ›ā  āā ` ā1.ā0 ¸ āOpinions€œper€›se€are€out€of€style,€with€most€practitioners€formingĐ z#Ę Đa€position€paper€with€the€advantages€and€disadvantages€of€eachĪposition€detailed.Đ ¸ (#¸ (# Đā  āā ` ā2.ā0 ¸ āThe€chances€of€an€opinion€being€interpreted€as€a€đ đcoveredĐ û&K" Đopinionđđ€are€great,€with€the€result€that€if€you€donđđt€investigateĪthe€facts€and€circumstances€like€a€well€paid€private€eye,€youĪwill€be€liable€to€the€client€(since€the€standard€is€dictated€byĪCircular€230)€and€with€the€Office€of€ProfessionalĐ §+÷&! ĐResponsibility.Đ ¸ (#¸ (# ĐĖā  āD.ā0 ` āStatistical€Tendencies,€for€EAđđs,€Accountants,€&€Attorneys„€InformalĐ V Đconversation€with€the€Office€of€Professional€Responsibility€œ(OPR).Đ ` (#` (# ЛĖā  āā ` ā1.ā0 ¸ āCPAđđs€are€more€likely€to€get€into€trouble€for€taking€positions€onĐ ‡ × Đtax€returns€which€are€too€aggressive.€€Remember€that€being€tooĪaggressive€can€trigger€an€audit€and€that€its€not€up€to€theĪpractitioner€to€weigh€the€advantages€of€the€Audit€lottery€withĪthe€extra€client€expense€of€an€audit.Đ ¸ (#¸ (# Đā  āā ` ā2.ā0 ¸ āEnrolled€Agents€are€more€likely€to€get€into€trouble€by€mixing€aĐ ^Ž  Đnumber€of€activities€from€other€licenses€such€as€insurance,Īsecurities,€etc.,€expanding€the€likelihood€of€a€tax€ethicalĪviolation€where€the€other€activity€has€some€relationship€withĪtax.Đ ¸ (#¸ (# Đā  āā ` ā3.ā0 ¸ āAttorneys€are€more€likely€to€get€into€trouble€at€the€tax€planningĐ 5… Đstage€where€they€will€either€be€characterized€as€encouraging€taxĪavoidance/evasion,€and€in€the€extreme€as€a€co„conspirator.Đ ¸ (#¸ (# ĐĖā  āC.ā ` āIntentional€Delaying€TacticsĐ á1 ĐœĖ›ā  āā ` ā1.ā0 ¸ āIt€is€an€ethical€violation€to€encourage€a€client€to€availĐ 7‡ Đthemselves€of€the€tax€procedure€mechanisms€merely€for€delay.€ĪKeep€in€mind€that€interest€continues€to€accrue€when€proceduresĪare€utilizes€which€are€not€ultimately€successful.Đ ¸ (#¸ (# Đā  āā ` ā2.ā0 ¸ āIf€the€tax€is€so€severe€that€it€would€cause€a€drastic€life€changeĐ ã!3 Đfor€an€individual€or€end€an€ongoing€business,€a€bankruptcyĪexpert€should€be€called€in€to€evaluate€the€applicability€of€usingĪthe€bankruptcy€laws€to€protect€the€taxpayer€at€the€earliestĪpossible€time.€€Un„necessary€delay€could€impair€the€ability€ofĪthe€taxpayer€to€do€what€is€necessary€to€make€a€fresh€start,€whenĪthere€is€no€basis€for€challenging€the€tax€liability,€or€theĪtaxpayers€ability€to€pay.Đ ¸ (#¸ (# ĐĐ ;+‹&! Đā  āD.ā ` āSigning€documents,€especially€closure€œdocuments.Đ ° ЛĖā  āā ` ā1.ā0 ¸ āPractitioners€should€be€careful€of€the€federal€rules€regarding€theĐ V Đsignature€of€documents.€€Federal€default€rules€for€signatures€areĪthat€the€tax€practitioner€has€read€the€document,€understands€it,Īand€within€his/her€knowledge€it€is€correct.Đ ¸ (#¸ (# Đā  āā ` ā2.ā0 ¸ āEven€if€the€standards€above€can€be€met,€it€is€better€practice€toĐ ˛  Đhave€the€client€taxpayer€sign€all€documents€by€which€the€taxĪowing€is€compromised.€€There€is€potential€for€đ đsettler€remorseđđĪand€since€the€vast€majority€of€the€underlying€facts€andĪcircumstances€of€the€underlying€tax€liability€is€within€the€sole€Īmemory€and€experience€of€the€taxpayers,€they€are€in€the€bestĪposition€to€know€and€understand€the€legitimacy€of€theĪdocuments€they€sign.€€This€also€helps€to€eliminate€a€lot€of€theĪpotential€for€mis„communication.Đ ¸ (#¸ (# ĐĖā  āD.ā ` āPrivilege.Đ `° ĐœĖ›ā  āā ` ā1.ā ¸ āAttorneysĐ ļ Đā  āā ` āā ¸ ā(a)ā  āConfidentiality€ContextĐ á1 Đā  āā ` āā ¸ āā0  ā„Communications€between€Attorney€and€Client€areĪprotected€by€Confidentiality.Đ (#(# Đā  āā ` āā ¸ āā0  ā„Confidentiality€is€lost€where€disclosure€is€waived€byĪeither€filing€a€return€containing€the€information,€or€byĪexpressly€waiving€the€privilege.Đ (#(# Đā  āā ` āā ¸ āā  āĖā  āā ` āā ¸ ā(b)ā0  āWork€Product:€Work€done€by€Attorneys€and€controlledĐ #^ Đby€Attorneys€which€is€aimed€at€protecting€work€done€inĪanticipation€of€litigation.Đ (#(# ĐĖā  āā ` āā ¸ ā(c)ā0  āDisclosure€of€work€product€to€Outside€Auditor,€evenĐ ē' # Đunder€a€confidentiality€agreement€may€be€considered€aĪwaiver€if€the€disclosure€is€closely€related€to€preparingĪfinancial€statements.€€Current€case€in€this€area€is€TextronĐ ;+‹&! ĐInc.€case€in€which€a€first€circuit€en€banc€panel€held€thatĪthe€work„product€privilege€does€not€protect€a€companyđđsĪtax€accrual€œwork€›papers€from€IRS€discovery.Đ (#(# ĐĖā  āā ` ā2.ā ¸ āAccountants€&€Enrolled€Agents,€FederallyĐ \ Ŧ ĐœĖ›ā  āā ` āā ¸ ā(a)ā  āIRC€đđ7525€generally:Đ ˛  Đā  āā ` āā ¸ āā0  ā„Applies€to€an€individual€authorized€under€Federal€law€toĪpractice€before€the€Internal€Revenue€Service€where€theĪpractice€is€subject€to€Federal€regulation€under€31€U.S.C.Īsec€330.Đ (#(# Đā  āā ` āā ¸ āā0  ā„Covers€advice€given€by€an€individual€with€respect€to€aĪmatter€that€is€within€the€scope€of€the€individual'sĪauthority€to€practice.Đ (#(# Đā  āā ` āā ¸ āā0  ā„Limitation€(1)€does€not€cover€advice€given€which€is€orĪbecomes€a€€in€criminal€proceedings€or€state€law€matters.Đ (#(# Đā  āā ` āā ¸ āā0  ā„applies€only€to€communications€made€on€or€after€JulyĪ22,€1998.Đ (#(# Đā  āā ` āā ¸ āā0  ā„The€privilege€does€not€apply€to€any€writtenĪcommunication€before€October€22,€2004,€between€aĪfederally€authorized€tax€practitioner€and€a€director,Īshareholder,€officer,€employee,€agent,€or€representative€ofĪa€corporation€in€connection€with€the€promotion€of€theĪdirect€or€indirect€participation€of€such€corporation€in€anyĪtax€shelter.Đ (#(# Đā  āā ` āā ¸ āā0  ā„privilege€does€not€apply€to€writings€made€on€or€afterĪOctober€22,€2004,€involving€a€federally€authorized€taxĪpractitioner€with€respect€to€the€participation€of€anyĪperson€in€a€tax€shelter.€(This€is€one€of€the€reasons€taxĪpractitioners€donđđt€write€opinions).Đ (#(# Đā  āā ` āā ¸ āā0  ā„does€not€apply€to€non„CPA,€non„EA€accountantsĐ (#(# Đā  āā ` āā ¸ āā0  ā„beware€mixing€of€files€for€đ đadvice€clientsđđ€and€đ đtaxĪreturn€preparationđđ€clients.€€Material€used€to€support€aĪtax€filing€will€generally€be€considered€to€have€itsĐ ;+‹&! Đprivilege€waived.Đ (#(# ЀĖā  āā ` ā3.ā ¸ āAccountants€&€Enrolled€Agents,€State€of€CaliforniaĐ V ĐœĖ›ā  āā ` āā ¸ ā(a)ā0  āPassed€a€state€analogue€to€IRC€7525€in€2004€but€it€wasĐ \ Ŧ Đsupposedly€đ đinadvertentlyđđ€allowed€to€lapse€at€the€end€ofĪ2008.Đ (#(# Đā  āā ` āā ¸ ā(b)ā0  āFTB€is€supposed€to€continue€to€honor€the€federally€Đ Ũ - Đauthorized€tax€practitioner€privilege.Đ (#(# Đā  āā ` āā ¸ ā(c)ā0  āAB€129€has€been€introduced€to€reinstate€the€CaliforniaĐ 3ƒ  ĐPrivilege€officiallyĐ (#(# ĐĖōōVIII.ā ` āOther€Important€Procedural€ConsiderationsĐ ´  Đķķā  āA.ā ` āRepresentationĐ e  ĐœĖ›ā  āā ` ā1.ā ¸ āHelps€to€Limit€the€IRS€fishing€expeditionĐ kģ Đā  āā ` ā2.ā0 ¸ āEnables€taxpayers€to€put€forth€a€more€consistent€&€controlledĐ –æ Đfinancial€impressionĐ ¸ (#¸ (# Đā  āā ` ā3.ā0 ¸ āIRS€employees€generally€take€much€more€care€when€they€knowĐ ė< Đyou€are€represented€knowing€that€your€rights€are€known€to€you.Đ ¸ (#¸ (# ĐĖā  āB.ā ` āTaxpayer€Records€and€AffidavitsĐ mŊ ĐœĖ›ā  āā ` ā1.ā0 ¸ āYour€representative€views€the€evidence€as€to€how€it€will€beĐ Ã Đreceived€by€the€IRS€and€the€courts.Đ ¸ (#¸ (# Đā  āā ` ā2.ā0 ¸ āRedact€any€information€from€the€records€and€affidavits€whichĐ "i Đmight€lead€to€problems€such€as€unwarranted€admissions,Īproblems€for€others,€or€problems€in€other€years,€or€ancillaryĪproblems€for€the€taxpayer.Đ ¸ (#¸ (# Đā  āā ` ā3.ā0 ¸ āQuickly€respond€to€Information€Documentation€Requests€andĐ Å&" ĐSummons,€with€adequate€explanation€of€any€delays,Īdeficiencies,€and€inconsistencies.Đ ¸ (#¸ (# Đā  āā ` ā4.ā0 ¸ āPrepare€witness€statements€and€other€ancillary€documentationĐ F*–%  Đfrom€third€parties,€where€possible.€€These€should€be€used€toĐ q+Á&! Đexplain€the€Taxpayerđđs€position€and€to€complete€a€cogent,€fullĪpicture€of€the€reasonableness€and€in€some€cases€the€necessity€ofĪthe€Taxpayers€actions.Đ ¸ (#¸ (# Đā  āā ` ā5.ā0 ¸ āCreating€a€full,€well€supported€picture€of€the€taxpayerđđsĐ 1 Đbackground€and€records€should€be€done€at€the€EARLIESTĪMOMENT.€€Many€taxpayers€start€their€way€through€theĪprocedures:€letter€contact,€audit,€notice€of€proposed€assessment€Īfinal€assessment,€and€even€Tax€Court,€before€producing€all€theĪneeded€records€and€documents.Đ ¸ (#¸ (# ĐĖā  āC.ā0 ` āConsider€the€taxpayerđđs€pattern€of€expenses€and€income€in€comparisonĐ ^Ž  Đto€similar€businesses,€utilizing€the€IRSđđ€audit€profiles€published€on€theĪIRS€web€site€for€the€type€of€business€of€the€taxpayer.Đ ` (#` (# ĐĖā  āD.ā ` āLimitation€on€Positions€Taken€by€Federally€Authorized€Tax€PreparersĐ  Z ĐœĖ›ā  āā ` ā1.ā0 ¸ āCircular€230€makes€your€tax€preparer€Personally€liable€for€aĐ `° Đposition€which€cannot€be€supported.Đ ¸ (#¸ (# Đā  āā ` ā2.ā ¸ āSales€&€Use€TaxĐ ļ ĐĖā  āE.ā ` āEmployment€Development€DepartmentĐ  \ МņųAņĖņųAņ›ā  āā ` ā3.ā ¸ āEmployment€TaxĐ b˛ ĐĖā  āF.ā ` āDo€not€use€non„payment€or€Tax€Procedure€for€DelayĐ ¸  МņúAņĖņúAņ›ā  āā ` ā1.ā0 ¸ āThe€interest€and€penalties€the€government€charges€are€NOTĐ #^ ĐDEDUCTIBLE.€€Early€resolution,€even€if€it€means€fullĪpayment,€may€enable€deduction€for€the€interest€on€a€businessĪloan€(if€applicable).Đ ¸ (#¸ (# Đā  āā ` ā2.ā0 ¸ āWhere€naked€delay€is€discovered€the€government€will€be€moreĐ ē' # Đlikely€to€be€less€flexible€in€dealing€with€your€case.Đ ¸ (#¸ (# МņûAņĖņûAņ›ā  āG.ā ` āA€showing€of€cooperation€at€each€stage€of€the€proceedings€for:Đ ;+‹&! МņüAņœņüAņņüAņ‡ņüAņņũAņĖņũAņ›ā  āā ` ā1.ā ¸ āHaving€a€chance€to€have€the€IRS€pay€your€attorney€fees.Đ Û+ Đā  āā ` ā2.ā0 ¸ āAvoid€IRS€hardened€flexibility€believing€that€you€are€hiding€theĐ V Đtruth.Đ ¸ (#¸ (# Đā  āā ` ā3.ā0 ¸ āMovement€of€the€tax€case€in€the€direction€of€criminalĐ \ Ŧ Đinvestigation.€€Criminal€status€moves€the€case€from€the€civilĪarena€where€you€are€expected€to€disclose,€to€the€criminal€arenaĪwhere€you€have€the€5th€amendment€right€against€self„ŧincrimination.€These€should€be€seen€as€correlating€with€eachĪother€than€requiring€in€independent€showing€of€criminal€activityĪto€move€the€case€to€the€criminal€domain.Đ ¸ (#¸ (# ĐĖā  āH.ā0 ` āThe€use€of€the€Kovelđđed€Accountant€to€preserve€privilege€and€toĐ ´  Đdetermine€whether€complete€financial€information€available€may€showĪany€signs€of€impropriety,€especially€in€order€to€ascertain€positions€toĪbe€taken€and€the€effect€of€those€positions,€confidentially.Đ ` (#` (# ĐĖā  āI.ā0 ` āIRS€Government€RecordsĐ‹Û` (#` (# МņūAņĖņūAņ›ā  āā ` ā1.ā0 ¸ āTaxpayer€transcripts€can€be€ordered€on„line€or€with€a€telephoneĐ á1 Đcall€to€the€IRS.€€Transcripts€are€coded€number€summaries€of€taxĪreturns,€1099's,€etc€and€show€the€taxpayerđđs€account€as€seenĪfrom€the€IRSđđ€perspective.Đ ¸ (#¸ (# Đā  āā ` ā2.ā0 ¸ āFreedom€of€Information€Request€(FOIA)€is€used€to€look€at€theĐ Ũ Đactual€file€which€is€being€processed€within€the€IRS€pursuant€toĪthe€controversy€at€hand,€be€it€audit,€determination€of€proposedĪamounts€due€or€simple€mail€contact.Đ ¸ (#¸ (# ĐĖā  āJ.ā0 ` āFor€Missed€Regulatory€Elections,€a€petition€for€relief€can€be€had€underĐ d%´  ĐTreasury€Regulations€301.9100„1,„2,€&„3€for€elections€which€do€notĪrelate€to€subtitled€E,€G,€H,€&€œņBņIņBņņBņIņBņ.ņBņĐ ` (#` (# ĐņBņ›Ėā  āā ` ā(a)ā0 ¸ āApplies€to€regulations€of€the€Federal€Register,€Revenue€Ruling,Đ *`%  ĐRevenue€Procedure,€Notice,€IRB.Đ;+‹&!¸ (#¸ (# Đā  āā ` ā(b)ā0 ¸ āExcluded€are€deadlines€required€by€statute.а¸ (#¸ (# ĐĖā  āK.ā0 ` āTaxpayer€Bill€of€Rights€/€Taxpayer€Advocate€(efficiency€within€theĐ V Đbureaucracy€or€đ đengineering€feedbackđđ)Đ ` (#` (# Мņ˙AņĖņ˙Aņ›ā  āā ` ā(a)ā0 ¸ āEDD/FTB/BOEЇ ׸ (#¸ (# Đā  āā ` āā0 ¸ ā„Coordination€of€Taxpayer€complaints€and€Problems.Đ ¸ (#¸ (# Đā  āā ` āā0 ¸ ā„Identify€issues€and€propose€changeĐ ¸ (#¸ (# Đā  āā ` āā0 ¸ ā„Encourage€Public€SuggestionsĐ ¸ (#¸ (# Đā  āā ` āā0 ¸ ā„Coordinate€Outreach€Efforts.Đ ¸ (#¸ (# Đā  āā ` ā(b)ā0 ¸ āIRSĐ^Ž ¸ (#¸ (# Đā  āā ` āā ¸ ā„Much€more€individualistic€approachĖā  āā ` āā0 ¸ ā„Heart€of€Response€to€the€Individual€is€Form€911,€Request€forĪTaxpayer€Advocate€Service€AssistanceĐ ¸ (#¸ (# Đā  āā ` āā0 ¸ ā„TAS€helps€taxpayers€whose€problems€are€causing€financialĪdifficulty€or€significant€cost,€including€the€cost€of€professionalĪrepresentation.€This€includes€businesses€as€well€as€individuals.Đ ¸ (#¸ (# Đā  āā ` āā0 ¸ ā„toll-free€case€intake€line€at€1-877-777-4778.Đ ¸ (#¸ (# ĐĖā  āā ` ā(c)ā0 ¸ āIRS€€Taxpayer€Advocacy€Panel€(TAP)€is€a€two-way€conduit;Đ á1 Đserving€as€a€focus€group€for€the€IRS€providing€input€onĪstrategic€initiatives,€as€well€as€providing€a€venue€for€raisingĪissues€identified€by€citizens.€Structurally,€there€are€sevenĪgeographically€based€Area€Boards€aligned€with€the€currentĪTaxpayer€Advocate€Service€areas.€Total€of€95€members.Đ ¸ (#¸ (# ĐĖā  āL.ā0 ` āLow€Income€Tax€Clinic€(LITC)€€grant€program.€€A€federal€programĐ #^ Đadministered€by€the€Taxpayer€Advocate€Service,€led€by€NationalĪTaxpayer€Advocate€Nina€E.€Olson.€The€LITC€program€servesĪindividuals€who€have€a€problem€with€the€IRS€and€whose€income€isĪbelow€a€certain€level.Đ ` (#` (# МņBņĖņBņ›ā  āā0 ` ā(a)ā0¸ ` (#` (#āClose€coordination€with€the€Tax€Court,€the€judges€know€what€toĐ *`%  Đexpect.Đ;+‹&!¸ (#¸ (# Đā  āā ` ā(b)ā0 ¸ āClose€coordination€with€the€IRS.€€Supposedly€a€high€level€ofĐ ° Đconfidence€in€received€cases,€knowing€that€the€tax€payers€areĪpre„screened€for€low€income,€and€that€the€taxpayerĪrepresentatives€have€no€incentive€to€mis„represent.Đ ¸ (#¸ (# Đā  āā ` ā(c)ā0 ¸ āAncillary€programs€include€outreach€and€education€to€taxpayersĐ \ Ŧ Đwho€speak€English€as€a€second€language.Đ ¸ (#¸ (# Đā  āā ` ā(d)ā0 ¸ āIRS€awards€matching€grants€of€up€to€$100,000€per€year€toĐ ˛  Đqualifying€organizations€to€develop,€expand€or€maintainĪlow-income€taxpayer€clinics.Đ ¸ (#¸ (# Đā  āā ` ā(e)ā0 ¸ āTypically€associated€with€accredited€law,€business€orĐ 3ƒ  Đaccounting€schools,€or€501(c)€organizations€and€utilize€studentsĪto€represent€low€income€taxpayers€in€tax€disputes€with€the€IRS.Đ ¸ (#¸ (# ĐĖĖōōIX.ā  āConclusions€and€Things€to€RememberĐ  Z ĐĖķķā  āA.ā0 ` āRecords.€€Each€tax€return€should€be€prepared€with€records€kept€in€anĐ Ė Đorganized€manner€as€if€the€taxpayer€were€going€to€have€to€undergo€anĪaudit€the€day€after€the€tax€returns€were€filed.Đ ` (#` (# ĐĖā  āB.ā0 ` āThink€of€tax€procedure€or€any€procedure€as€an€extreme€left€leaningĐ xČ Đstructure€which€tapers€narrowly€toward€the€right.€€The€fullestĪopportunity€for€showing€and€proving€the€taxpayers€case€occurs€at€theĪfirst€opportunity,€even€at€the€filing€of€the€tax€return.€€Any€explanationĪoffered€at€the€time€of€filing€has€a€much€better€chance€to€be€viewed€asĪfactual€because€of€the€fact€that€the€taxpayer€attempted€to€justify€hisĪposition€at€the€earliest€moment.€€Not€that€taking€a€position€on€theĪreturn€will€prevent€further€inquiry,€but€it€bolsters€the€frankness€of€theĪposition€taken.Đ ` (#` (# ĐĖā  āC.ā0 ` āRegardless€of€whether€the€taxpayer€is€wrong€or€right,€nothing€makes€aĐ &(v# Đposition€worse€than€a€taxpayer€putting€their€head€in€the€sand.€€This€isĪusually€done€by€ignoring€communications€from€the€IRS,€or€looking€atĪthe€audit€as€an€opportunity€to€argue€your€way€out€without€records,€orĐ §+÷&! Đputting€forth€the€minimum€response€communications€to€the€IRSĪhoping€to€wait€to€the€last€minute€to€find€an€attorney€to€đ đwin€the€day€inĪtax€courtđđ.Đ ` (#` (# ĐĖā  āD.ā0 ` āAlways€consider€every€case€as€a€bureaucratic€disposal€proposition.Đ \ Ŧ ĐIRS/FTB€wants€to€dispose€of€the€case€in€a€way€that€they€can€feel€thatĪan€adequate€compensation€has€been€received€given€the€difficulties€ofĪthe€taxpayer.€€Much€will€depend€upon€legitimately€convincing€the€taxĪofficial€that€disposal€of€the€case€on€terms€acceptable€terms€to€theĪclient,€with€sufficient€case€notation€to€pass€scrutiny€of€the€taxĪofficialđđs€superiors.Đ ` (#` (# ĐĐ  ‰Ų  ĐĖŌ,°ŌŌ,°ŌŅđ°ŅŅ,°ŅÔ‡&ŧŊ ŧŧŧöDÔā@ø ø 1ėāÔ#†ŧöDŧ ŧ&ŧŊmÚ#ÔÔ‡'ŧŊ ŧŧŧöDÔÔ‡'Üœŗ Ü ŧ'ŧŊÔō ōCurtis€L.€Harringtonķ ķÔ#†ÜkM Ü Ü'ÜœŗÁÚ#ԈĐ W+ ĐŌā,ŌŌā,ŌÔ#†ŧöDŧ ÜÜkMāÚ#ÔĶ¸ŪšĶō ōOfficeķ ķ:€ā  āHarrington€&€Harrington;€€6300€State€University€Drive,€€Suite€250,€€Long€Beach,€CAĐ ëŋ Đā 8 ā⠐ ā90815;€€€Tel.€(562)€594„9784;€€Fax€(562)€594„4414Ėā 8 ā⠐ ācurt@patentax.com€ō ōPATENTAXōōđđķ ķķķā   āā ø āhttp://www.patentax.comĐ Į› ĐĶff¸ŪĶĖō ōĶšŲffĶSpecialtyķ ķ:⠐ āHigh€Technology€Patent€/€Trademark€/€Intellectual€Property€Law€&€TaxationĐ #÷ ĐĶffšŲĶĖĶšŲffĶō ōEducationķ ķ:⠐ āō ōB.S.€ķ ķChemistry€„€Auburn€University€(1974)Đ y M Đā 8 ā⠐ āō ōM.€S.€Electrical€Engineeringķ 퀄€California€State€University€Long€Beach€(1990)Đ c 7  Đā 8 ā⠐ āō ōM.S.€Chemical€Engineeringķ 퀄€Georgia€Institute€of€Technology€(1977)Đ M !  Đā 8 ā⠐ āō ōJ.D.ķ 퀄€University€of€Houston€School€of€Law€(1983)Đ 7  Đā 8 ā⠐ āō ōM.B.A.ķ 퀄€University€of€Oklahoma€(1985)Đ ! õ  Đā 8 ā⠐ āō ōLL.M.€ķ ķōōTaxationķ퀄€University€of€San€Diego€School€of€Law€(1997)Đ  ß  ĐĶffšŲĶĖĶšŲffĶō ōAdmittedķ ķ⠐ āSupreme€Courts€of€California,€Arizona,€Texas,€&€NevadaĐ a5 Đō ōto€Practiceķ ķ:€U.S.€Supreme€Court;ā đ āā H āU.S.€District€Court,€Central€District€of€CaliforniaĐ K Đā 8 ā⠐ āInternal€Revenue€Service€ā H āU.S.€Patent€and€Trademark€OfficeĐ 5  Đā 8 ā⠐ āU.S.€Court€of€Appeals€for€the€Federal,€Fifth€&€Ninth€CircuitsĖā 8 ā⠐ āCalifornia€Department€of€Real€Estate€„€BrokerĖā 8 ā⠐ āLos€Angeles€County€California€EMT„BasicĖā 8 ā⠐ āU.S.€Tax€Courtā ˜ āā đ āā H āFCC„Commercial€&€Amateur€ExtraĐ ŅĨ Đā 8 ā⠐ āCertified€by€The€State€Bar€of€California€Board€of€Legal€Specialization:€TaxationĖĶffšŲĶĖĶšŲffĶō ōLanguagesķ ķā0  āJapanese€Language€Proficiency€Examination,€Approved€by€Japan€Foundation,€LevelĐ  ß Đ4;€Kanji€Proficiency€Exam€of€the€Japan€Kanji€Aptitude€Testing€Foundation,€passedĪLevel€7,€recognized€by€the€Japan€Ministry€of€Education,€mastery€of€640€kanji;€someĪtechnical€Russian€reading€ability.Đ ø%ø% ĐĶffšŲĶĖĶšŲffĶō ōPatentsķ ķ⠐ āPrepared€and€prosecuted€more€than€100€patents,€in€the€electrical€andĐ ę Đō ōPreparedķ ķā0  āchemical€technologies;€specialty€areas€include€optics,€fiber€optics,€cryogenicsĐ Ô Đelectromagnetics,€natural€gas€processing€and€computers,€&€trademark€and€copyrightĪpreparation€and€prosecution.€€Patents€include:€Chemical:€4,957,634;€4,851,077;ĪElectrical:€4,876,892;€4,833,351;€4,837,525;€Mechanical:€4,879,895;€4,906,199;€andĪOptical:€4,919,512;€4,898,468.Đ ø%ø% ĐĶffšŲĶĖĶšŲffĶō ōLitigationķ ķā0  āAssociate€counsel€in€patent€matters,€trade€secret€litigation;€Judge€pro€tem,€LongĐ ō Æ$ ĐBeach€Municipal€Court;€Superior€Court€Mediation€program,€Long€Beach;€Attorney„ŧClient€fee€Dispute€Arbitrator,€Long€Beach€Bar€Association;€Patent€Panel,€AmericanĪArbitration€Association.Đ ø%ø% ĐĶffšŲĶĖĶšŲffĶō ōTeachingķ ķā0  āAdjunct€Law€Professor,€ōōGolden€Gate€University€School€of€Lawķķ,€LL.M.€TaxationĐ ũ$Ņ#) ĐProgram;€ōōGeorgia€Institute€of€Technologyķ퀄€previously€taught€heat€and€mass€transferĐ į%ģ$* Đlaboratories,€and€analog€and€digital€computer€laboratory.Đ ø%ø% ĐĶffšŲĶĖĶšŲffĶō ōMember:ķ ķ⠐ āState€bars€of€California,€Arizona,€Texas€and€Nevada;€Long€Beach€Bar€AssociationĐ !(õ&- Đā0 8 āā08ø%8ø%ā(Board€of€Governors,€1994„95);€Orange€County€Bar€Association,€Taxation€Section,Ī(Co„Chair€Technology€Law€Section€1996);€Past€Member,€Orange€County€Chapter€ofĪCalifornia€Society€of€Enrolled€Agents€„€President€2003„2004;€Fellow,€National€TaxĪPractice€Institute;€California€Bar€Association:€CEB€committee€(1999„2000);€IncomeĪ&€Other€Tax€subcommittee€(Chair€2000„2002);€Taxation€Section€ExecutiveĪCommittee€(2002„2005);€Cal€Bar€Taxation€Advisory€Committee€(2006„2011).