At TaxConnections, we are building a panel of experts that will answer your tax questions when you need. TaxConnections tax and financial experts are available to help you! In order to find the right expert to answer your inquiry, we need to shine the spotlight on our experts. We interviewed Jim Marshall, a tax and financial advisor out of Arizona.

Jim Marshall brings years of experience in tax and audit in a wide range of public and private companies large, medium and small. His experience includes responsibilities for major land acquisitions and dispositions and their structuring including publicly-held banks, savings and loan associations, mortgage bankers, real estate developers, insurance companies, builders and contractors. In addition to a strong background in all phases of tax and audit, Jim is a proven innovator and solution developer on both traditional and nontraditional alternatives.

Can you tell us about your area of tax specialization and why you are so passionate about it?

The real estate area is a particularly broad area ranging from private investors, construction contractors, developers, real estate sales, owners, and REIT’s. There is always something changing in these areas and that requires the tax professional to keep current. I generally find that if I can fully understand the client’s issue(s), I can find a solution that resolves or mitigates the outcome.

What is the best advice you would give to a client today?

Keeping good tax records and supporting documents is critical. Records do not have to be hardcopy and can be electronic or scanned media and then indexed so they can be retrieved. Other than the permanent records that should be retained forever, the periodic records should be kept five years from the filing date since some states have an additional year of exposure.

Can you tell us about a unique tax matter you solved for a client?

A client borrowed $40,000 to pay expenses from his 401-k and was repaying it over 5 years. The next year, the taxpayer filed bankruptcy and had listed the loan as a debt in his liabilities. The Court ordered that he could not make further payments on the loan and the trustee sent him a 1099R for the remaining $38,000. The bankruptcy settled and the taxpayer had to deliver for review that year’s 1040. After much research, we could find nothing on point, so we deducted the 1099R amount as part of that year’s forgiveness of debt (form 982) and the tax reviewing agent agreed.

Can you tell us a story about an audit that was most memorable to you?

On a recent two year audit of a taxpayer, he had income between $2 and $3 million each year and paid the respective taxes each year in excess of $800,000. After completing the audits, the taxpayer owed the IRS an additional $35,000, of which approximately $28,000 were timing differences that the taxpayer would recoup in the next three years. The IRS then wanted nearly $8,000 as an accuracy penalty. We wrote and faxed several position papers to the reviewers noting that the $35K was less than 2% of taxes paid and insignificant and that the private taxpayer was not required to have an audit in order to file his taxes. After several weeks of go-round, the Agent called me and asked if he withdrew the accuracy penalty how soon would I sign the settlement. I said 15 minutes and the matter was closed.

What is the number one problem faced by small business owners and/or taxpayers today?

Small business regardless of the industry is burdened with too much compliance regulations between IRS, OSHA, SSA, state Income tax, state and city sales taxes, and payroll taxes to name a few. While all business has these compliance issues, the small business is hit harder because the cost of compliance is disproportionate to revenue. These functions should be streamlined and eliminated where redundant.

This doesn’t even get into the building industry with permits, construction inspections, building taxes, fire and safety inspections, workmen’s comp for generals and subs and insurance coverage.

What are taxpayers being audited on most these days in your area of expertise?

Substantiation of asset basis cost. Whether it is the cost of rental property, business property or investment property, retaining the original purchase documents plus improvements documentation during the holding period is critical. Most of these types of substantiation are not recoverable or reproducible and must be retained in hard copy or retrievable electronic format.

What is the best way for somebody to contact you?

Between 7am and 7pm, Arizona time, the best way to contact me is by phone at 480.443.0500. Or by e-mail at Jim@MarshallPC.com and I will get back to you either by email or phone as you instruct.

If you want to communicate with a tax or financial advisor, stayed tuned while we unveil our Ask Tax Questions sections.