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May
24

Till the IRS do us Part

Expert View
Why Spouses Make Lousy Business Partners
Stephen J. Dunn, 05.21.10, 2:00 PM ET
Spouses generally do not make good business partners for many reasons. For example, when spouses work together in a business, it tends to dominate their personal life. But there’s one underappreciated reason not to go into business with your spouse: It can create dire and long-lasting problems with the Internal Revenue Service.

All too often, struggling small businesses fall behind in paying their federal payroll taxes. The business withholds income taxes and Social Security taxes from its employees’ paychecks, and then, short of cash, doesn’t send the cash to Uncle Sam. The business owners may plan to make good on the payment, but get farther and farther behind. Then, the business goes under.

These unpaid payroll taxes aren’t like any normal business debt. Even if the business is incorporated, the withheld portion of the tax–withheld income tax and withheld Social Security tax (this excludes employer matching Social Security tax)–can be assessed against a corporation’s “responsible persons” personally. Such an assessment is called a “trust fund recovery penalty.”

Who is a responsible person? It’s someone who controls how the business uses its available cash. The chief executive officer almost always is a responsible person. Check-signing authority is a telltale sign of responsible personhood, unless it is not exercised.

A business can have more than one responsible person and you don’t have to be the boss to be considered a responsible person. Say a couple works in a business. One of them is the CEO and the other a bookkeeper. If the business fails to pay its payroll taxes, the IRS could assert the trust fund recovery penalty against both the CEO and the bookkeeper. For this reason the bookkeeper should not have check signing authority for the business.

Once a trust fund recovery penalty is assessed, a lien (legal claim) for it arises against all of the responsible person’s property then owned or later acquired. The IRS can collect the lien by levy (seizure) of the responsible person’s property for 10 years to collect it. “Property” for this purpose includes real property, as well as wages, bank accounts, and other personal property.

Once a federal tax lien arises, the IRS will record notice of it against the responsible person in the register of deeds’ office in the responsible person’s county of residence. A recorded notice of federal tax lien impairs the responsible person’s ability to sell property, real or personal, or to obtain credit. Adverse credit can also affect an individual’s employability, especially in a financial industry. (For more on the growth of and problems caused by IRS liens, click here.)

A trust fund recovery penalty assessed against both spouses can have a devastating effect, impairing the credit and employability of both of them, and subjecting all of their property to federal tax lien and levy. But if the trust fund recovery penalty is assessed against only one of the spouses, their situation will be markedly better. A trust fund recovery penalty assessed against only one of the spouses will not impair the non-responsible spouse’s credit or employability and will not result in a lien against the non-responsible person’s separate property or more than half of their joint property.

Here’s another tax reason not to work with your spouse: When divorcing couples have worked together in a business, it is not uncommon for one spouse to use the other spouse’s alleged tax fraud to leverage a better divorce settlement.

In a typical case, the husband has founded a closely held business and is its driving force. The wife has worked as a bookkeeper for the business and knows that the business’ income tax returns have underreported income. She also knows that personal expenses of the couple were paid by the business, deducted on the business’ income tax return, and not reported as income to the couple on Forms W-2 or 1099. In the divorce negotiations, the wife’s attorney raises these issues to the husband’s attorney, implying or actually threatening disclosure to the IRS if the divorce settlement is not to the wife’s liking.

Won’t the wife get herself in trouble by going to the IRS? She might, but if she’s got a good divorce lawyer, who calls in a smart tax lawyer, she might get not only immunity from prosecution but also a share of the money recovered from husband as an informant’s reward. (For more on tax informants, click here.)

Spouses really do not make good business partners.

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May
20

Supreme Court Review

Right to be Advised of Right to Counsel. Florida v. Powell, 130 S. Ct.
1195 (2010). The Florida Supreme Court held that Miranda requires that a
suspect must be expressly advised of his right to counsel during custodial
interrogation, including both the right to talk to a lawyer “before questioning”
and the “right to use” the right to consult a lawyer “at any time” during
questioning. Here, Powell was warned that he had “the right to talk to a
lawyer before answering any of [their] questions,” and that he had “the right
to use any of [his] rights at any time [he] want[ed] during th[e] interview.”
The Florida court deemed this warning misleading because it did not specify
that Powell could consult with a lawyer during questioning. The United
States Supreme Court reversed 7-2, holding that Miranda was satisfied in this
case. In determining whether police warnings were satisfactory, reviewing
courts are not required to “examine [them] as if construing a will or defining
the terms of an easement. The inquiry is simply whether the warnings
reasonably ‘conve[y] to [a suspect] his rights as required by Miranda .’”
Duckworth v. Eagan, 492 U. S. 195 (1989). The warnings Powell received
satisfy this standard. By informing Powell that he had “the right to talk to a
lawyer before answering any of [their] questions,” the Tampa officers
communicated that he could consult with a lawyer before answering any
particular question. And the statement that Powell had “the right to use any
of [his] rights at any time [he] want[ed] during th[e] interview” confirmed
that he could exercise his right to an attorney while the interrogation was
underway. In combination, the two warnings reasonably conveyed the right
to have an attorney present, not only at the outset of interrogation, but at all
times. Justice Stevens dissented, joined by Justice Breyer, on the merits.

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May
19

Florida Seal & Expungement of Criminal Records

Under certain circumstances, someone with an arrest record in the state of Florida may either seal or expunge a criminal arrest record. However, it may not be the best way to proceed in all cases. Before doing so, a candidate should consult with an attorney. In most cases, sealing or expunging is an excellent way to clean a criminal history. There are several requirements needed to be eligible to take advantage of this statute. For example, if the person has ever been convicted of any charge, anywhere or anytime, they are ineligible to seal or expunge their criminal record. Below are the instructions for applying for a certificate of eligibility from the Florida Department of Law Enforcement. Please contact us if you are interested in clearing an arrest from your record.
Instructions for Applying for a Certificate of Eligibility

In order to obtain a Certificate of Eligibility to petition the court to seal or expunge a criminal history record, the following requirements must be met pursuant to s.943.0585(2) and s.943.059(2), Florida Statutes.
• Section A of the application must be completed and signed in the presence of a notary public.

• The applicant must be fingerprinted by authorized law enforcement personnel or a criminal justice agency. The fingerprint form must include the applicant’s name, race, sex, date of birth, *social security number (SOC) , and signature, prior to submission to FDLE. A FDLE Fingerprint Form, FD 40-024, is supplied with the application package.

• The applicant must provide a certified disposition of the case that he/she is applying to have sealed or expunged. This may be obtained from the Clerk of Court in the county in which the charge(s) were brought. For Pre-trial Intervention cases and other Diversion programs, a certified letter of completion from the State Attorney’s office may substitute for a certified disposition. Please provide a certified copy of Termination of Probation, if applicable.

• A NONREFUNDABLE money order or cashier’s check for $75.00 made payable to the FDLE must accompany the application.

• If you are requesting an expunction of a criminal history record, you must have the state attorney or statewide prosecutor complete Section B of the application. (If not completed, the application will be processed as a sealing of your criminal history record).

Special Note: All of the items listed above are required at the time that the application is submitted. If an item is missing or the application or fingerprint form is not completed, the application will be returned unprocessed.

* This information is voluntary; failure to disclose may delay the processing time of your application

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