IRS Tax Help

Signing off

2009-06-27T06:52:00.002-05:00

I was recently appointed a Federal Appeals Officer for the IRS. As such, it would be a conflict of interest to give private advice on tax matters. So I'm shutting the blog down.

If you need any tax help please visit the sponsors on this site. They all provide tax relief and many give free consultations.

Take care and good luck to all!

I Don't Have To Pay The IRS Until October Since I Filed An Extension

2009-04-20T09:33:00.003-05:00

WRONG! BUZZZZZZZ! Thanks for playing.

Many people don't realize this but when you file for an automatic extension to file your annual Form 1040 with the IRS you only get an extension on the filing of the return. You do not get an extension on paying any tax due. For those who are wondering what IRS form allows you an extension to pay, there is none. There exists no extension to pay program with the IRS.

So you filed your extension and didn't pay. Now what?

Well, write a check ASAP for an estimated amount on what you'll owe when you do get around to filing the return (before October 15th of course). That should stop the bleeding on some of the penalties and interest that have been accruing for the past 5 days.

If you can't do that then get that return in ASAP and request an Installment Agreement, Currently Not Collectible Status, or consider your eligibility for an Offer in Compromise. (See my previous post on these options). But remember, the return must be filed and the tax assessed before you can petition for any of these IRS resolution options.

I Owe the IRS Tomorrow and I Can't Pay Them!

2009-04-14T11:16:00.002-05:00

Tomorrow is April 15th. To every American that means your annual IRS 1040 form is due. A lot of people get refund checks, but not everyone. Some have a balance due and must write the check by tomorrow to avoid late payment fees and IRS enforced collection.

But what if you can't pay it? Then what?

First, request an Installment Agreement (a pay plan). You can actually attach this request to your tax return and send them in together. The IRS form is Form 9465. If you owe more than $25,000 in taxes, be prepared to make full financial disclosures to the IRS to determine how much you can pay.

Second, if you are in a temporary bind (you lost your job or your business went into the crapper recently), you can call the IRS at 1-800-829-1040 and request a Currently Not Collectible ("CNC") status. There is no form for this. Just request it over the phone and once again be prepared to disclose your monthly income/expenses to prove you can't make monthly payments.

Lastly, if you can't pay it and will probably never be able to pay it (including liquidating all your assets), then look into an Offer in Compromise (Form 656). Be careful though. These are very tricky cases. In most cases it's best to get the help of an experienced professional (an attorney, CPA, or EA that specializes in civil tax controversies).

Good luck!

IRS "Finder's Fee" for Turning In Delinquent Taxpayers

2009-04-07T15:37:00.003-05:00

Jimmy T. from Philly said he heard that you can get money for turning in someone to the IRS who didn't pay their taxes. Is this true?

Yes it is Jimmy. The IRS Compliance and Enforcement Division has its informants just like the law enforcement officers you see on TV. And the IRS does pay them. . . sometimes.

Here's how it works:

The IRS Whistleblower Office pays money to people who blow the whistle on persons who fail to pay the tax that they owe. If the IRS uses information provided by the whistleblower, it can award the whistleblower up to 30% of the additional tax, penalty and other amounts it collects.

Who can get an award?

The IRS may pay awards to people who provide specific and credible information to the IRS if the information results in the collection of taxes, penalties, interest or other amounts from the noncompliant taxpayer.

The IRS is looking for solid information, not an “educated guess” or unsupported speculation. They are also looking for a significant Federal tax issue - this is not a program for resolving personal problems or disputes about a business relationship.

What are the rules for getting an award?

The law provides for two types of awards. If the taxes, penalties, interest and other amounts in dispute exceed $2 million, and a few other qualifications are met, the IRS will pay 15% to 30% of the amount collected. If the case deals with an individual, his or her annual gross income must be more than $200,000. If the whistleblower disagrees with the outcome of the claim, he or she can appeal to the Tax Court.

The IRS also has an award program for other whistleblowers - generally those who do not meet the dollar thresholds of $2 million in dispute or cases involving individual taxpayers with gross income of less that $200,000. The awards through this program are less, with a maximum award of 15% up to $10 million. In addition, the awards are discretionary and the informant cannot dispute the outcome of the claim in Tax Court. Some of the rules are different from those that apply to cases involving more than $2 million.

If you decide to submit information and seek an award for doing so, use IRS Form 211. The same form is used for both award programs.

Is My IRS Stimulus Check Considered "Income" on My 2008 Tax Return?

2009-04-06T10:44:00.003-05:00

Your stimulus payment from last year should not be included as income when you file your 2008 tax return.

Most people received the maximum Economic Stimulus Payment in 2008. However, some people may be eligible for a first time credit or for a larger payment than they were eligible for last year.

This amount is called a Recovery Rebate Credit . You'll need to have the amount of your Stimulus Payment from last year so you can figure out whether or not you're eligible to receive this credit.

Here's how you find out what your 2008 stimulus check was:

Go to How Much Was My 2008 Stimulus Check? It's an IRS link.

Make sure you have the following information or you won't be able to use this online tool:

Your Social Security Number
Your 2007 Filing Status
Number of Exemptions claimed on your 2007 tax return

For more in depth details about the Recovery Rebate Credit, visit the IRS site on the topic.

Good luck and take care!

Missing Tax Returns? Here's What You Do. . .

2009-04-03T15:28:00.003-05:00

. . .FILE THEM!

Yes, it's that simple. Even if you can't pay them you need to file them.

Why?

1. Because Willful Failure to File a tax return is technically a federal tax crime punishable up to one year in prison and a $25,000 fine for each year not filed.

2. And the IRS will not hear word one about any type of resolution to your tax debt if there are any missing returns.

So get your records together and go see your friendly neighborhood tax preparer. If you need to file them on your own then you can get previous year's forms at the IRS website.

But I don't have my records for that far back. Now what?

If that's the case then you need to prepare and file a "best-efforts" return. Basically, you need to guess at your deductions. You can get the actual income reported for you on W2s/1099s from the IRS directly. These are called "Income Transcripts." Just call 1-800-829-1040 and request the income transcripts for the years you are missing.

If you need to prepare a best-efforts return, I'd recommend hiring a seasoned tax preparer for the job. And don't hire someone from one of those chain preparation companies (you know who I mean). They do not specialize in preparing best-efforts returns.

Once all of the returns are in you can begin the process of resolving it. I know it's hard but you absolutely NEED to get those missing returns in. If you need help let me know. I can walk you through it if necessary.

Good luck and take care.

Buy A New Car, Get IRS Cash Back

2009-04-02T12:25:00.001-05:00

The IRS announced today that taxpayers who buy a new passenger vehicle this year may be entitled to deduct state and local sales and excise taxes paid on the purchase on their 2009 tax returns next year.

“For those thinking about buying a new car this year, this deduction may give them a little more drive to make their purchase this year,” said IRS Commissioner Doug Shulman. “This deduction enables taxpayers to buy now and get cash back later on their tax returns.”

The deduction is limited to the state and local sales and excise taxes paid on up to $49,500 of the purchase price of a qualified new car, light truck, motor home or motorcycle.

The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.

IRS also alerted taxpayers that the vehicle must be purchased after Feb. 16, 2009, and before Jan. 1, 2010, to qualify for the deduction.

The special deduction is available regardless of whether a taxpayer itemizes deductions on their return. The IRS reminded taxpayers the deduction may not be taken on 2008 tax returns.

See the full story at the IRS website.

I received an IRS Tax Notice correcting my return. Now what?

2009-04-02T10:15:00.002-05:00

The IRS uses many different form letters to correspond with taxpayers. Because these letters need to be "one size fits all" formats to apply to many different situations, they can be hard to read and understand when they are addressing your specific case. Many times you'll read an IRS notice over and over again and still not be sure exactly what's happened or what you should do about it.

One such IRS Notice is the one that says they've adjusted or corrected your tax return. That language is scary enough because it sounds like an audit just happened. And actually, it technically did. If the IRS adjusted your return then they either assessed additional tax or they reduced your tax owed (yes, this actually happens quite often).

So, what should you do? First, compare your actual tax return (usually Form 1040) with the information in the IRS Notice. The IRS tries to give you a side-by-side comparison of your return and the changes in the letter, but it never makes much sense. Your actual return will make things clearer.

If the changes resulted in a refund due to you, then you'll get a check or a direct deposit in about 6 weeks. That is, unless you have other obligations enforceable by the IRS (back taxes owed, child support, student loans, etc.) in which case the IRS will keep the money and apply it to this other debt.

If the IRS change letter says you owe more than before, again check it out with your records. If you agree with the change then do nothing further (except try to resolve it). If you disagree with the change then make sure you respond to the notice ASAP as instructed.

Of course, an experienced tax attorney, CPA, or Enrolled Agent can be retained to go over your specific issues in more detail if necessary. You can also get more information from the IRS website at Tax Topic 651.

Good luck and take care.

The Dreaded IRS "AMT"

2009-04-01T15:59:00.002-05:00

This blog is primarily about resolving back IRS tax issues, but I've had a few questions about the mysterious AMT (Alternative Minimum Tax) so I thought I'd give you a "101" on it.

Actually, I'm going to let someone else give you the 101. The following is an excerpt from an article by Kaye A. Thomas of Fairmark.com. You can read the entire article here.

A brief overview of the alternative minimum tax (AMT).

The alternative minimum tax (or AMT) is an extra tax some people have to pay on top of the regular income tax. The original idea behind this tax was to prevent people with very high incomes from using special tax benefits to pay little or no tax. The AMT has increased its reach, however, and now applies to some people who don't have very high income or who don't claim lots of special tax benefits. Proposals to repeal or reform the AMT have languished in Congress for years, but effective action does not appear to be on the horizon. Until Congress acts, almost anyone is a potential target for this tax.

The name comes from the way the tax works. The AMT provides an alternative set of rules for calculating your income tax. In theory these rules determine minimum amount of tax that someone with your income should be required to pay. If you're already paying at least that much because of the "regular" income tax, you don't have to pay AMT. But if your regular tax falls below this minimum, you have to make up the difference by paying alternative minimum tax.

Should You Try and Settle With the IRS If You're Unemployed?

2009-04-01T15:37:00.002-05:00

Alright, I'm giving you a 2fer today since I've been gone so long.

Lois M. of Lovonia, MI asked me a great question: "I just lost my job. Wouldn't this be the perfect time to file an Offer in Compromise with the IRS since my income is $0?"

I love this question because at first blush you'd think Lois was right. I mean, after all, Offers in Compromise are usually based on your ability to prove a Doubt as to Collectibility with the IRS settlement unit. And that Doubt as to Collectibility is based on what you're making in monthly income right now. So it stands to reason, if you're making $0 per month now, won't the IRS settle for $0?

Well, the IRS never settles for $0, but let's put that off to the side for right now. Bottom line is the IRS is on to this line of argument, and the Doubt as to Collectibility that one is to prove is actually a doubt that the IRS will be able to collect the entire debt over the next 4 to 5 years. In other words they are projecting your future monthly disposable income. Although mathematically $0 times 60 months (5 years) equals $0, if you're unemployed the IRS assumes that this is a temporary set back and you will be employed again. Therefore they will either cancel your Offer or they will project future income based on what you were making in your old job.

Well that won't work! Heck, you're not even making that anymore!

My recommendation is to call the IRS ACS Unit at 1-800-829-1040 (or your local Revenue Officer if one is assigned to you) and try to work out a temporary non-collectible status known as a Currently Not Collectible status ("CNC"). This will allow you to pay $0 to the IRS for the next six to 12 months. It will give you a cash flow reprieve until you get a new job and you can figure out if an Offer in Compromise is right for you.

Good luck and take care.

What's an IRS Collection Due Process Hearing?

2009-04-01T15:05:00.003-05:00

Eric Chandler from Los Angeles wrote me asking what he could do to fight an IRS assessment that he believed he didn't owe. Eric received a Notice of Federal Tax Lien ("FTL") recently claiming he owed $29,000. However, he claims the assessment was adjusted over a year ago to only $3,000.

Should Eric have to live with a $29k tax lien on his credit report if he only owes $3k? NO!

So how does he fight it? My first recommendation would be to file for a Collection Due Process Hearing (a "CDPH"). You only have 30 days to file for this so make sure you get it in on time. The CDPH allows you a forum with the IRS to present evidence as to why you believe the IRS's actions are incorrect.

Eric should request the CDPH as soon as possible and be prepared to present his arguments that the lien for $29,000 should be removed. Of course, Eric, you should also expect the IRS to re-file a new tax lien for the $3,000. The only way to get out of that is pay the $3,000 debt off, or reduce it with some of the other methods I've discussed.

Good luck and take care.

Sorry for the absence

2009-04-01T14:51:00.003-05:00

First of all. . . my apologies. I have been away from this blog for far too long. I had some personal and professional commitments that put a lot of things in my life on hold. . . including this great blog.

So I'm back! And I'm here to start answering your questions and helping you out with your IRS problems. So ask away!

IRS Tax Help: IRS Hotline for Tax Help

2008-07-16T15:35:00.001-05:00

An IRS Tax Help Hotline? yes. it exists.

This will be a quick post. Some of you have expressed frustration in trying to contact the IRS at the standard number (1-800-829-1040). You have to wait on the phone forever and listen to the same Mozart song over and over again while you wait for an IRS Agent to come on and put you on hold again.

So if you have a real emergency, bypass the regular IRS line and call the Taxpayer Advocate office. Their number is 1-877-777-4778.

IRS Offer in Compromise - Settle for "Pennies on the Dollar"?

2008-07-15T11:09:00.005-05:00

I personally hate the sales pitch "Settle for Pennies on the Dollar" when it comes to the IRS Offer in Compromise program. The IRS itself even recommends caution when seeing this phrase.

Not that it is entirely inaccurate. I mean, you can actually settle your back taxes with the IRS for a small fraction of what you owe. . . IF YOU QUALIFY!

The results can be amazing. My firm recently finished an Offer in Compromise ("OIC") case for a client who owed $79,000.00 in back taxes for. . . (wait for it). . . $9. Yes, you read that correctly. Nine bucks!

Now that's a record for our firm and we've been doing this for years with over 10,000 clients in our database. Does this mean that every single client of ours will settle for $9? No way. But you see how one true story about settling with the IRS can be misleading. Many of these "Pennies on the Dollar" companies will make you believe that you will settle for $9 too if you hire them. So be careful!

So is it possible to "Settle for Pennies on the Dollar?" Sure it's possible. I guess I would be looking more at probability than possibility if it were me. If it is probable (i.e., you qualify for an OIC) then there is still the question of how many pennies on the dollar will you be settling for? You can settle for 97% of your tax debt (a 3% savings) and an unethical tax company can still say they settled for "Pennies on the Dollar." But I'll bet you weren't expecting to settle for 97 pennies on the dollar. Were you?

My point is you need to go through a very thorough investigation phase before you can know for sure what your options are with an Offer in Compromise or any tax resolution path for that matter. This investigation phase takes approximately 21 to 30 days. It's purpose is to go through every single IRS file and document as well as your information and evidence and analyze the real legal options that you have.

Any attorney worth his/her fee will DEMAND that you go through this phase because it's the only way he or she can truly guarantee the exact resolution for you and your situation.

So if you're looking to truly resolve your tax situation and want more than just "Pennies on the Dollar" promises from so-called "tax experts," make sure you ask them about their Phase One Investigation process. If they don't know what you're talking about or claim that you don't need it. . . RUN FAST!

Make sure that you get experienced representation if you are going to pay good money to have your IRS situation fixed. In a future post I will go step-by-step through the OIC process so you can see if it's something you want to tackle on your own.

IRS Levies and Community Property States

2008-07-07T13:36:00.004-05:00

An Anonymous poster recently wrote me worried about her husband's assets. They live in California (a community property state). They file "Married Filing Separately." She owes for three years of back taxes. He owes nothing. Everything is in his name, including the home they both live in.

Anonymous wants to know:

"Will the IRS put a lien on [the] house since we are married? Can the IRS directly effect my husband (ie. garnish his paycheck, hit his credit, seize his assets)?"

The answer, unfortunately, is: Yes. The IRS can place a Federal Tax Lien on the home and actually seize the assets of the husband in this case even though he has absolutely nothing to do with the federal tax liability itself.

You see in a normal situation (non-community property case), the person owes the debt if their name is on the tax return. So if you file "Married Filing Jointly" then you both owe the IRS taxes, even if one of you worked and the other stayed home to take care of the kids because both of your names are on the return. And the same rule applies if you file "Married Filing Separately" in that only the person whose name is on the return with the debt owes the money. The other spouse (if they don't owe for their return), owes nothing and therefore the IRS cannot come after this non-liable spouse.

However, in community property states it's a little different. Actually, it's the same in the sense that the non-liable spouse still does not owe the taxes in question. The difference is regarding the collection of that tax and the property laws of the individual state.

In community property states, all assets are viewed as belonging to BOTH the husband and the wife. So in Anonymous's case, even though her husband owns the home in his name only on the mortgage and title, she owns it also under the community property laws. Therefore, the IRS can place a lien on the house and even seize it if they want, not because her husband now owes the tax debt (he still doesn't owe the IRS anything), but because that house is considered Anonymous's house as much as her husband's under California state law.

It's usually the same with other assets including wages. The bottom line is that you do NOT want to be in a community property state if you have one spouse who owes the tax and the other who does not, because in the end BOTH of you are equally effected by the ability of the IRS to collect the one debt from marital property.

You can request certain relief for your husband under IRS rules similar to Innocent Spouse relief. While this is a good solution to your problem on paper, actually getting that relief can sometimes be more trouble than it's worth.

My advice Anonymous is to get your missing returns filed as quickly as possible (the IRS cannot set up even a pay plan if there are missing returns) and get yourself into an Installment Agreement or Currently Not Collectible (CNC) status right away. That's the only way in this case to safegurad your husband's assets short of paying the entire debt off.

Take care,

Jack

P.S. There are nine community property states in the Unites States. They are: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, Wisconsin. In Alaska you can "opt-in" to be considered as having community property status.

Help! The IRS Garnished My Wages/Levied My Bank Account!

2008-06-27T14:01:00.004-05:00

Tori D. from San Diego wrote me with a case where she is being garnished at work and it's only leaving her a few hundred dollars a month to live off of.

OUCH! This is one of the worst things that can happen when you owe the IRS back taxes. Many of the taxpayers I have come across usually have a false sense of security when it comes to the IRS because they think "hey, I don't own anything so they have nothing to take. I'm safe." That is an illusion.

You see, while the IRS certainly does have the power to take your car or house, they don't like to do it. It's too much work. The upfront paperwork is a nightmare for the agents, then they have to go through the seizure process, and then the auction process, and then no one pays full fair market value for anything at an IRS auction, so they end up with a lot less money. Many times it's just not worth it for the agent.

But you don't have to auction off cash. And cash usually comes from bank accounts and paychecks. That's where some people make a mistake. If you have a job, or even are a subcontractor, the IRS can (and usually will) take your money. And yes, they will do it even if it leaves you nothing to live off of.

So if this happens to you, how can you get the levy lifted?

SOLUTION: First, you need to make sure all of your tax returns (Forms 1040) are filed with the IRS. The IRS cannot by law lift a levy if there are any missing returns. It's ok if you owe for the missing years. You don't have to pay on them. . . just get them filed.

Next it depends on whether you owe more or less than $25,000. If less, set up a Streamlined Installment Agreement.

If you owe more than $25,000 then it will be much more complicated. You'll have to go through full financial disclosure and prove to the IRS (1) that the levy is creating an undue financial hardship, and (2) that you can either afford to pay nothing right now or that you can pay a reduced amount monthly.

If you can't pay anything right now and can prove it, ask for a "Currently Not Collectible" status. This means the IRS will release the levy and leave you alone, usually for six to twelve months. (Ask for this CNC status even if you owe the IRS less than $25,000 and can't afford to pay the Streamlined Installment Agreement").

Any of these options will release the levy, but make sure you ask for a copy of the Release of Levy document and fax it directly to your bank or payroll department as soon as you get it.

There is also a kind of "trick" for getting the levy released. But only do this if you plan on going through with it.

Quickly put together an Offer in Compromise (Form 656) and the accompanying financial disclosure forms (Forms 433-A and 433-B). Then, fill out Form 911 (Request for Taxpayer Advocate Service Assistance) and state on the form that the levy is causing you and undue hardship and that you would like to get this Offer in Compromise submitted ASAP to stop it.

You see, as soon as the Offer in Compromise is submitted the IRS will typically release the levy, but you need the Taxpayer Advocates office to help you expedite this. Do NOT do this unless you believe you have a legitimate chance of getting an Offer in Compromise accepted (more on these in a future post).

Good luck.

IRS Pay Plan: Setting Up An Installment Agreement for Back Taxes

2008-06-26T10:40:00.006-05:00

Ok. Let's start with an easy one. Malcolm C. of Lexington, KY writes me asking how he can set up a payment plan with the IRS on his $19,000 tax debt.

Let's review some of the facts of the case first:

1. Malcolm owes for two years; 2003 and 2004.
2. All of his tax returns are filed.
3. He is not under a current levy/garnishment.
4. He does not owe for business taxes, just personal.

It turns out Malcolm claimed "exempt" on his W-4 for 2003 and 2004 to try to get some extra cash. And now the IRS wants their money. The IRS wants Malcolm to pay $753 per month on a payment plan. But he can only afford to pay $400 per month. What are his options?

This is a very common scenario that I see over and over again with my clients. First of all, you will never get away with claiming "exempt" on your W-4. Eventually you will always have to pay the piper (plus penalties and interest). In almost every situation, the extra money you got during the exempt period just isn't worth the hassle and expense you experience later on.

If the IRS wanted to get super technical about it, they could probably make a criminal charge of tax fraud stick by claiming that you knowingly and willfully underwithheld on your income taxes. However, the chances of you getting even investigated (let alone indicted) are next to none in a case like this. Bottom line: Just don't do it.

SOLUTION: The best thing for Malcolm to do is call the IRS ACS (Automated Collection System) line at 1-800-823-1040 and request a "Streamlined Installment Agreement."

A Streamlined Installment Agreement is available to any taxpayer as a matter of right if you owe less than $25,000; have all of your tax returns filed; and only owe for personal income tax (no business payroll tax debts).

The Streamlined Installment Agreement is calculated by taking your total tax liability (in this case $19,000) and dividing it by 60 months. So Malcolm is looking at a monthly payment of approximately $320 to $325 per month over the next five years (60 months) that he can set up with the IRS ACS unit.

The benefit of a Streamlined Installment Agreement is that the IRS will not levy or garnish you as long as you are on the pay plan. It becomes another monthly bill and you just pay it for the next five years (it will actually be a little longer than 5 years since penalties and interest will still accrue).

Now the IRS reserves the right to file a Federal Tax Lien even if you are making the payments to preserve their interest in the debt until it is paid in full, so don't be shocked if this happens. Remember a Lien and a Levy are two different things. The lien will not take your money, your wages, or your property. It just sits on your credit report until the debt is paid.

Also, you need to make sure that you stay compliant for the future. Any non-compliance will put the agreement in default and then all bets are off. The IRS defines "compliance" in this case as making sure all of your returns are filed on time (usually by April 15th) and that you do not run any new balances (all taxes are paid by April 15th for the previous year).

Good luck Malcolm. In a future post I will explain how you can get a reduction in a similar case by getting the penalties and interest on penalties removed.

Welcome to the IRS Tax Help Blog

2008-06-25T17:46:00.003-05:00

I'm setting up this blog for people who find themsleves in trouble with the IRS and just need some honest answers instead of some salesman trying to close them with a "pennies on the dollar" pitch.

The truth is that you CAN settle your IRS debt. I've been doing it for years. But you need all of the facts first. And that's where I come in. . . to give you those facts in an unbiased and truthful way.

Here's how it works: If you have an IRS tax problem, post it as a comment on this blog post. I will then go through the comments and create subsequent blog posts that answer your questions and give you advice on how to fix your IRS problem.

Don't divulge private information in these comments. Remember, everyone can read them. But do give me the facts and be specific about the problem you are having so I can give you the best answer possible.

Of course, we have no attorney/client relationship. This is not legal advice. It's a blog after all. But I'm hoping the information I give you can serve as a starting point for you to solve your own tax debts once and for all.

So go ahead. Give me your comments. Let's get this IRS problem over with so you can go back to living a normal life.

Jack

P.S. If you're wondering "why should I listen to you?" go to this page to see my resume and credentials.