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Tax Problems: Important Information for Taxpayers in DC

Current Trends Regarding Tax Problems in Washington, DC: Important Information for Taxpayers

For most people, a tax audit letter provokes anxiety and confusion.

It’s not uncommon to get your mind racing about whether you’ll land in trouble with the DC government, or fear that your assets or wages could be taken to pay for your back taxes.

First, it’s important to keep in mind that every locality has different tax rules and deadlines, and Washington, DC is no exception.

The good news is that there is a solution to every tax problem. Attorney Sammy Kim is an experienced Washington, DC tax attorney and she has the skills and experience help you solve your tax problem now.

Here are some of the key tax matters that Washington, DC taxpayers must be aware of:

DC Sales And Use Tax and Economic Nexus For Businesses

The DC Sales and Use Tax audit process is rather robust.

Because there are so many government contractors who are subject to DC Sales and Use taxation and their gross revenues are very high, the DC OTR is vigorous about auditing filings and payments of Sales and Use taxes — especially lately.

It is often tough to deal with collection agents in Washington, DC, but having a skilled tax attorney handle your case can make it much easier.

Attorney Sammy Kim has worked with several clients in the past month alone who are dealing with collection actions related to non-payment of DC Sales and Use taxes.

Your business must pay Sales and Use taxes in Washington, DC, if you meet certain requirements for “physical nexus,” which involves tangible presence or activity there, or “economic nexus.”

Economic nexus is established in the District if your remote-selling business had in the prior calendar year, or will have in the current calendar year, more than $100,000 of gross receipts from retail sales delivered into the District or more than 200 separate retail sales delivered in the District.

If you sell products or services that require you to pay Sales and Use taxes, you must register online at My Tax DC.

It is not atypical for business owners who are cash-strapped to think they can skip paying their Sales and Use Taxes and figure it out later.

But if you do that, you could land in a situation with an amount of back taxes due that you may never be able to handle.

If you fail to pay, the DC OTR will send you an assessment, which requires you to get a sales tax permit if you do not already have one, submit past-due sales tax returns and pay all sales taxes due.

Waiting to pay also means that you’ll have significant penalties and interest you will have to pay eventually.

Plus, failing to file Sales and Use Tax returns is considered a misdemeanor, which can lead to a fine of up to $5,000 fine and/or imprisonment for up to 180 days.

If the amount of back taxes due is greater than $10,000, it rises to a felony crime, carrying a penalty of up to $10,000 or 3 times the taxes due, whichever is greater, and/or imprisonment for up to 10 years.

Sales and Use tax liabilities are not easy to reduce. They cannot be discharged in Chapter 7 bankruptcy proceedings.

Furthermore, the DC taxing authority will convert the business tax liabilities to personal ‘converted’ civil penalties under the responsible persons’ Social Security Numbers, so the authority can also go after your personal assets to satisfy your business tax debt.

Unique DC Tax for Investment Properties: The DC Franchise Tax

DC has another specific tax type — the DC Franchise Tax — that seems foreign to individuals and businesses from other states.

This tax often trips up businesses or individuals from other states when they are not familiar with it.

You are required to pay the DC Franchise Tax if you have an investment property in DC.

If your gross receipts are below a certain amount, you are exempt from the DC franchise tax, but most businesses and individuals pay at least $250 or 8.5% (for tax year 2022).

One interesting thing about the DC Franchise Tax is that the state of Maryland allows a credit for the Franchise Tax paid in DC to avoid double taxation, but the Commonwealth of Virginia does not recognize the DC Franchise tax as a credit to the income taxes.

Real Property Tax Exemption in DC For Foreign Government Entities

Another notable in DC is the Real Property Tax Exemption.

There are many foreign government entities and MFGOs (Miscellaneous Foreign Government Organizations) present in the DC area.

Those entities can apply for real estate tax exemption status under the DC Code.

An experienced tax attorney can process such applications and successfully obtain tax exempt status for clients.

Doing that requires maneuvering through the DC government and U.S. Department of State, Office of Foreign Missions (OFM).

Attorney Sammy Kim has helped Korean government affiliates become approved for the DC Real Property Tax Exemption and saved them more than $150K per year on real estate taxes.

Other Ways the DC Office Of Tax Revenue Could Take Action Due To Tax Debt

Here are some actions the DC taxing authority might take against you if you fail to pay your taxes:

  • Wage Or Bank Levy:  In a wage or bank levy, the taxing authority can seize wages, bank accounts, accounts receivable, and other money that is supposed to be owed to a taxpayer. A tax attorney like Attorney Sammy Kim can help you have the levy stopped and work with you to solve the problem in a better way.
  • Property Seizure: The taxing authority can seize your property if you have not paid your taxes. That might include taking your residence, business establishment, business property, automobile, boat, etc. The DC OTR might then sell your property at a public auction if you do not take action to pay the taxes you owe.
  • Tax Lien: If a taxpayer fails to pay the District within 10 days of receiving a tax due notice, a tax lien may be filed with the District of Columbia Recorder of Deeds. A tax attorney can help you make it possible for a sale of your property to go through. The DC taxing authority can place a lien on your home, car or other assets, making it impossible to sell. A tax lawyer can work with the state to release the lien or change the priority of the lien so your sale can go through.

Driver’s License Suspension: DC’s ‘Clean Hands’ Mandate

DC has a policy known as the “Clean Hands” mandate (DC Code § 47-2862).

This law states that individuals and businesses may be denied “city goods or services,” including licenses, permits, grants contracts) if they owe a debt to the District of Columbia that is more than $100 for fees, fines, taxes, or penalties and/or failure to file required District tax returns.

However, a new law was passed called the “Clean Hands Certification Equity Amendment Act of 2021,” which will allow people in DC to renew their driver’s license regardless of debt status, starting in Fiscal Year 2024.

How Your DC Tax Attorney Can Help Solve Your Tax Problems

An experienced District of Columbia tax lawyer can work with you to solve all sorts of DC tax problems.

In many situations, an experienced tax attorney will draft letters, protect your appeal rights and help reduce your back taxes due.

A tax lawyer will make your case to the DC taxing authority, based on knowing the unique rules in the District, and  deal with administrative channels to help you reach the best solution for you.

A tax attorney can help you gather all documentation needed and build a case for settling your tax debt.

That might include completing and submitting an Offer in Compromise application or requesting an Installment Agreement if you are unable to pay your back taxes in full.

Attorney Sammy Kim has successfully represented many clients in Washington, DC tax audits.

These audits typically involve Sales & Use Tax audits, Franchise Tax audits, and Income Tax audits.

To ensure meeting all requirements for a tax audit, it helps to have a tax attorney who knows the details of tax laws and regulations in DC.

A skilled tax lawyer will make your case and help you pay less to the state.

Having a tax attorney is especially important if your case is complicated or involves actions that could be considered tax fraud.

Speak to a Washington, DC, tax lawyer to get help with your tax problems now.

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