IRS Mind

2012 Brings Changes to IRS Collection Rules

noreply@blogger.com (Gus) — Tue, 17 Jan 2012 06:47:00 +0000

While most of us were celebrating the holidays, the IRS was making changes to its systems, processes and forms.

This year, the IRS made a significant change to how it will collect unpaid balances from individuals and people paying certain business tax liabilities who owe between $25,000 and $50,000. These changes will affect how tax practitioners help their clients with IRS collection issues.

On Dec. 31, 2011, the IRS released Form 9465-FS, Installment Agreement Request. Individuals with unpaid liabilities of more than $25,000 and less than $50,000 can use this form to request an IRS direct debit installment agreement. The IRS changed the threshold for this type of agreement from $25,000 to $50,000, which will allow the IRS to process the agreements faster. And taxpayers won’t be required to attach supporting documentation if they agree to pay the balance owed within 72 months or within the collection statute, whichever is earlier.

Types of Agreements

Internal Revenue Code Section 6159(a) allows the IRS to establish written agreements for taxpayers to pay their full or partial tax balances in installments. Administratively, there are three types of IRS installment agreements for individual taxpayers:

Guaranteed Installment Agreements

Balance: $10,000 or less
Timeline: Pay the balance in three years or less, collection statute permitting
Financial statement/supporting documentation: Not required
Other requirements: Must have filed and paid on time for the past five tax years without having established an installment agreement to pay

Streamlined Installment Agreements

Balance: $25,000 or less
Timeline: Pay the balance in five years or less, collection statute permitting
Financial statement/supporting documentation: IRS customer service representatives and collection personnel routinely accept these agreements with Form 9465, Installment Agreement Request; via online payment arrangement (OPA) submissions; or by phone without the taxpayer having to provide a financial statement and supporting documentation.
Other requirements: Must have filed all past tax returns and made corrections to withholding and/or estimated taxes

Negotiated Installment Agreements

Before the IRS recently released Form 9465-FS, any taxpayer who couldn’t pay and owed more than $25,000 had to provide a financial statement and supporting documentation to request a negotiated installment agreement. Under this type of arrangement, IRS collection personnel review the financial statement and payment proposal to determine the taxpayer’s ability to pay immediately with liquid assets or loan capabilities, and with monthly installment payments.

For individuals, the IRS uses collection financial standards to limit living expenses for food, clothing, out-of-pocket medical costs, housing and utilities, and transportation. Taxpayers are regularly held to these standards unless they can show hardship or other circumstances that warrant exceeding the limits.

2012 Brings New Rules

With the new Form 9465-FS, taxpayers who owe more than $25,000 and less than $50,000 can avoid filing a detailed financial statement and supporting documentation. They can instead submit a direct debit installment agreement request to full pay the tax liability within 72 months or within the collection statute of limitations, whichever is shorter.

For new balances filed this year, you can file the paper Form 9465-FS and attach it to the front of the tax return. For existing balances, you can mail the form directly to the IRS.
The IRS also plans to modify its online payment arrangement (OPA) application at irs.gov to allow for taxpayers to request installment agreements for balances of up to $50,000. The current application allows for balances of up to $25,000 and payment terms of up to five years.

If your client cannot pay the tax in full within the prescribed period or doesn’t want a direct debit installment agreement, you must submit Form 433A (long form, Collection Information Statement for Wage Earners and Self-employed Individuals) or Form 433F (short form, Collection Information Statement), along with supporting documentation to substantiate your client’s ability to pay.

Despite the increased threshold for this agreement, it doesn’t appear that the IRS has altered its procedures related to filing federal tax liens. Procedurally, the IRS automatically files a tax lien if a taxpayer owes more than $25,000, even if the taxpayer is in an installment agreement to pay the taxes in full. The IRS does this to protect its interest and enforce compliance. Many IRS practice and procedure experts expect the IRS to relax internal rules related to filing liens for those who owe less than $50,000 and are in direct debit installment agreements to full pay the taxes owed.

What’s next?

With the total amounts in IRS collection up 183% over the past 10 years, the IRS must look for additional ways to collect past-due balances. The new Form 9465-FS may allow taxpayers with balances over the IRS streamlined threshold to achieve more manageable payment plans and avoid extensive financial disclosure and interaction with the IRS. But don’t count on the IRS to immediately provide further relief on filing tax liens.

The tax lien is still the IRS’ most effective collection tool. If your client cannot pay his or her balances owed and wants to avoid a lien, get the balances under $25,000 and enter into a streamlined installment agreement before entering IRS collection.

GAO recommends tax debtors be stopped at the border

noreply@blogger.com (Jim) — Tue, 12 Apr 2011 02:08:00 +0000

In an effort to decrease the widening national debt and tax gap, the General Accounting Office is recommending that Congress and the IRS consider revoking and denying passports to those who owe tax debts to the Federal government.

With the Nation’s debt approaching $14 trillion and the tax gap, in 2001 numbers, at $345 billion annually, the GAO is recommending using trusted debt collection methods to collect on past due tax debts. Currently, the Department of State currently screens passport holders and applicants for past due child support. Since 1998, over $200 million has been collected on overdue child support payments. The GAO thinks the IRS can collect even by setting up a collection function in the international terminal at the airport.

How much can be collected from denying and revoking passports?

The GAO estimates that at least 1% of all passports issued in 2008, or 224,000 Americans, owe back taxes. The total owed: in excess of $5.8 billion. The GAO studied just the 2008 passports issued and suspects that there is substantially more in unpaid taxes from these individuals, especially because those who owed also had significant unassessed liabilities due to unfiled tax returns. The GAO only studied passport activity for one year. They suspect a multi-year investigation would find even more debtors passing through the airport checkpoints.

Other GAO findings

The GAO also selectively looked into several tax debtors/internation passengers to get a clear picture of potential abusive and criminal tax activity. What they found was startling. The GAO found that abusive and criminal tax debtors were passing freely past United States borders, without consequence. Even more alarming was that the IRS was not pursuing several of them for their unpaid taxes. In a selected sample of 25 debtors who were issued passports and owed:

two had worked under State Department contracts

six of the 25 were or are under criminal investigation by the IRS

ten had prior federal indictments or convictions

GAO’s proposal

The GAO recommends that the IRS, Congress and the Executive Branch study the possibility of collecting taxes through the State Department and the Passport Denial Program. The IRS already successfully collects back child support, unpaid social security repayments, and overdue student loans through garnished refunds via the Treasury Offset Program. Why not turn it around and let other agencies collect back taxes. The IRS already levies tax debtors through the Federal Levy Payment Program that collects back taxes through the Social Security Administration and the federal payments system.

The Problem: IRS taxpayer privacy limitations

The IRS is effective in taking information from other governmental agencies. However, under section 6103 of the Internal Revenue Code, it is limited in what it can disclose to others. The GAO points out that taxpayer information cannot be shared with outside agencies, except as allowed by law. Generally, this disclosure has been limited to sharing certain tax information with State taxing authorities for tax administration and child support enforcement. For the most part, the IRS cannot disclose tax information without the consent of the taxpayer.

The GAO pointed out that the IRS could not even disclose sensitive taxpayer information on those tax debtors working for the State Department, even though these individuals may be performing sensitive work requiring security clearances. Two individuals who were studied were actually committing identity theft on deceased individuals. The IRS was even precluded from disclosing these names to the State Department directly.

The Answer

Step #1: Change section 6103 to allow the IRS to share information with the State Department.

Step #2: Engage IRS collections through the Passport Denial Program

The GAO concluded that the IRS, Congress and the Executive Branch should consider overcoming the section 6103 hurdles and start collecting through the State Department. The GAO stated: if Congress is serious on collecting the $330 billion in unpaid federal taxes, change the law that restricts the IRS from collecting on those with passports. Then, use the information to collect through the Passport Denial Program.

What’s next?

This is a realistic proposal from the GAO. With the IRS looking for creative collection alternatives, it is quite likely that they will consider this option. Consider that the IRS has been using several alternatives lately, from pressing former tax havens to share tax information to help with tax administration to requesting outside collection agencies (albeit unsuccessful) to collect for the IRS. The IRS is also getting pressure to use outside information to collect on more government contractors that owe debts.

Clearly, with a growing national debt, collecting tax debt from those getting screened at the airport would be an efficient use of government resources. The government could use existing technology and information systems without much additional cost – a win-win situation.

My prediction: look for legislation soon and for the IRS to start collecting taxes through the Department of State. With more demands to collect taxes and no additional resources in the foreseeable future, the IRS must use current information systems and government programs to close the tax gap.

8 Consumer Tips if you owe Uncle Sam on April 15th

noreply@blogger.com (Jim) — Thu, 07 Apr 2011 03:15:00 +0000

Each year, about 20 million taxpayers owe taxes when they file their tax return. On September 30, 2010, the number of taxpayers with serious tax delinquencies grew to over 10 million.

With the economy only marginally better and unemployment still at recession levels, the trend looks to continue.

What can you do if you owe on April 15th? Here are 8 consumer tips that you should follow to save you money and ensure that you do not become a tax debtor again.

#1: Whatever you do, save up to 25% by filing on time. The absolute worse reaction to finding out you owe on your tax return is to not file your return on time. The penalty is 5% per month, up to 25%, for filing late. If you owe $2,000 on your return, that penalty amounts to $500. If you file on time, you will only be charged a small failure to pay penalty and interest on the accrued balances.

#2: Get a payment plan with the IRS- it’s easy to set up. The IRS has basically three payment plans. Most qualify for the two simple payment plans and they are dirt simple to set up. In fact, 94% of all IRS payment plans are these two payment plans. Here they are:

Simple payment plan #1: the “guaranteed installment agreement” – the “GIA” is for those taxpayers who owe less than $10,000, can pay in the full balance in three years, and have a clean compliance history (no payment plans and all tax returns filed for the last 5 years). Over 87% of taxpayers who owe have a balance under $10,000- in fact, 3 out of 4 taxpayers owe less than $3,000. For the person who owes $3,000, that is a payment under $100 a month.
Simple payment plan #2: the “streamlined installment agreement” – the “SLIA” is for those who owe under $25,000. It allows for the payments to be made over 5 years. The IRS’ minimum monthly payment as the assessed balance divided by 50. This allows for accruals of the failure to pay penalty and interest. For someone who owes $20,000, the payment plan would be a minimum of $400 a month.

The third type of payment plan is a “negotiated payment agreement” based on the amount you owe and your ability to pay. In this case, you would have an amount owed over $25,000 or you would not be able to qualify for a GIA or SLIA. In these rare cases, you will have to provide a financial statement to the IRS and work out payment terms. If you have to go this route, go to a local IRS office and speak with a representative to get your best results. Bring all of your receipts for all of your expenses, bank statements and proof of income for the past three months.

#3: Save money and time and set up a payment plan online. The IRS has made it easy for these taxpayers to get a payment agreement. You can do it by mail via Form 9465 or online using the Online Payment Agreement on the IRS website. Last year, over 61,000 taxpayers set up an online payment arrangement, avoiding the long IRS phone wait times or professional fees in using an accountant if you are tentative about talking to the IRS yourself.

#4: Set up a direct debit payment agreement. It saves $53 and greatly reduces your chances of default. The IRS charges $105 for a payment agreement. However, if you set up a direct debit agreement, the fee drops to $52. Also, because the IRS requires you to pay an amount each month (you cannot prepay next month), you should set up a direct debit agreement to avoid default. Over 40% of all payment agreements are defaulted by the IRS- many due to late arriving payments. Defaults require another IRS contact, intrusive questions, and a $45 reinstatement fee. Avoid all of this mess by setting up a direct debit agreement.

#5: If you cannot pay anything now, ask for 120 days to pay. Sometimes all you need is a few months to pay. The IRS will give you 120 days to pay the amount in full. The cost for a 120 day extension - nothing. If circumstances change within the 120 days, you can always inform the IRS of the change in your finances and set up a GIA or SLIA, with no questions asked. Interest will continue to accrue during this time, but it may give you time to get the funds to pay.

#6: The IRS gives cheap loans- the interest rate is currently 4%. Each quarter the IRS sets the interest rate that they will charge on underpayments. Currently it is 4% and has been that low or lower for over a year. The IRS does charge a failure to pay penalty for all balances due. However, if you get into a payment plan, this penalty is 0.25% per month – or 3% per year. That is an annual interest and penalty rate of 7% - not bad for any consumer loan.

#7: Do not fall for those late night ads for “pennies on the dollar” tax relief. These commercials taught the little-used tax relief program called the “Offer in Compromise” program. To illustrate how little it is used: last year, out of the approximately 20 million taxpayers who filed and had a balance due, only around 14,000 were accepted. Also, the average amount paid in an “Offer” was over $9,000 in 2010. These tax relief firms charge $3,000 or more for what is rarely available. Don’t make matters worse by buying an expensive gamble.

#8: Stop from owing again – change your withholding or start making estimated tax payments. If you owe for the first time or continually find yourself owing each year, change your withholding using a Form W-4 or start making estimated tax payments quarterly to stop the annual cycle of “file and owe.” Next April 15th you will be glad you did.

If you owe Uncle Sam on April 15th, don’t be paralyzed. File on time, pay if you can or make arrangements to pay, and make sure it does not happen next year by changing your withholding. Follow the 8 tips outlined here and save yourself money and time.

Visit your tax servant, Jim, at http://www.irsmind.com/

AARP is in trouble again

noreply@blogger.com (Jim) — Fri, 01 Apr 2011 21:15:00 +0000

AARP is under the fire again over whether is a legitimate tax-exempt organization or just a disguised for-profit company.

Specifically, AARP is under attack for receiving $657 million in royalty revenue from insurance contracts in 2009.

There is a history here. In the last decade, AARP and the IRS disputed the taxability of some of the same proceeds, i.e. was the royalty income received by AARP for such contracts actually related to their "exempt purpose" - i.e. advocating for senior citizens. The IRS settled the case with AARP, who agreed to restructure and move business services to a for-profit subsidiary. In the deal, the IRS agreed that the insurance services were royalty income, which was exempt from "unrelated business income tax" - i.e. the tax paid by tax-exempts for running for-profit businesses.

Tax-exempts can have unrelated business activities. However, it cannot be substantial. If the activity is substantial, the tax-exempt loses its status.

On April 1, 2011, the CEO of AARP, Barry Rand, provided his defense of AARP's extensive insurance business operations. At a highly contentious joint hearing by the House Ways and Means Health Care and Oversight subcommittees, he stated in defense of AARP that all of the funds used by the royalties go back into the mission and purpose of AARP. While that is true, it is not a very good defense. Mr. Rand is essentially stating that the "destination of the funds" determines whether the activities are tax-exempt. Prior to the Revenue Act of 1950, Mr. Rand would have had a position. Tax exempt organizations could raise income in a for-profit manner as long as it was used for a charitable purpose- i.e. the "destination of funds" test.

However, one can see the absurdity in this rule and eventually Congress changed the rule in 1950. What was born was the concept of "unrelated business income" - i.e. income whose source was not tax-exempt but rather in the form of a for-profit business. However, specifically exempted from the tax was several passive activity income sources such as certain rents and royalties. Removing the "destination of funds" test makes perfect common sense - if not, for-profit businesses would be put at a significant disadvantage to their tax exempt counterparts performing the same for profit activity but have no resulting taxes.

AARP may be exempted from paying taxes on the income, but they still have to explain their primary activities- which is still the test for tax exemption. As my friends at the IRS would say - "just follow the money and it will tell you their purpose."

That leads us back to Mr. Rand's testimony today. What is AARP's primary purpose??? Mr. Rand should be answering that question. When your membership dues increase 32% in 7 years but your royalty income triples, you have some explaining to do about your true activities.

Surely, there are many companies out there who are put at a disadvantage from AARP's activities. Maybe the two Republicans who started this inquiry got an ear full from them. Today they did not get a good explanation from Mr. Rand. The "ends justify the means" argument will not bear well for your organization's tax exempt status.

Tax Filing is delayed for some due to recent tax law changes

noreply@blogger.com (Jim) — Thu, 23 Dec 2010 18:17:00 +0000

Over 19 million Americans may have to wait to late February to file their tax returns and get their refunds

The IRS announced today that over 19 million Americans may have to wait to file their tax returns due to the late tax breaks passed by Congress this week. The IRS will need until mid to late February to change its forms and systems to accept those who were affected by three reinstated deductions:

those who itemize and take the state and local sales tax deduction- primarily benefiting those states that do not have state and local income taxes such as Florida (over 11 million Americans claimed this deduction in 2008),
those claiming the higher education tuition and fees deduction up to $4,000 of tuition and fees paid to post-secondary schools (4.57 million in 2008), and
teachers who deduct educator expenses for out of pocket expenses up to $250 (3.75 million in 2008)

With over 77% of Americans receiving refunds averaging $3,170, this will mean some financial hardship for those expecting the early refund. Those needing refunds are more likely to file earlier in the tax season.

The IRS encourages these taxpayers to file using software to minimize further delays as paper returns have a much higher error rate than e-filed returns. However, these delays affect both paper and electronically filed taxpayers.

Tax stimulus creates problems for 13.4 million Americans

noreply@blogger.com (Jim) — Thu, 16 Dec 2010 17:05:00 +0000

13.4 million Americans were or will be negatively affected by the Making Work Pay Credit in 2009 and 2010

On December 16th, 2010, the Treasury Inspector General for Tax Administration ("TIGTA"), the IRS' internal watchdog, released a report about the negative affects of the Making Work Pay Credit for 2009 and 2010. The Making Work Pay Credit is a 2009 stimulus provision that would allow up to an $800 credit for working couples ($400 for single taxpayers and $250 for certain retirees) on their 2009 and 2010 tax returns. In order to get these funds out in the economy quickly, the IRS adjusted its withholding tables to allow for less taxes to be withheld on each paycheck.

According to the Report, the withholding snafu is causing April 15th tax bills. It also added additional penalties for 1.1 million Americans taxpayers. The most likely people are likely to have these circumstances:

dependents who receive wages (they were not allowed the credit)
single taxpayers with more than one job (they got double benefits)
joint filers when one or both spouses have more than one job or both spouses work (they got double or triple benefits)
individuals who file a return with an individual taxpayer identification number (called an "ITIN" - the credit is only available to those with a valid SSN. The tables used to calculate withholding were used for all taxpayers. The IRS had special rules for those with ITINs but employers most likely used the tables instead.)
taxpayers who receive pension payments (private pensioners are not eligible for the credit unless they also work)
social security recipients who receive wages (these got double benefits)

TIGTA warned the IRS in November, 2009, of the potential problems associated with administering the credit. They forecasted many would be adversely affected and it turns out that they were right.

TIGTA asked the IRS to identify those taxpayers who owed a penalty as a result of the credit and abate their penalties. The IRS declined to take any corrective action by refusing to contact taxpayers affected.

Penalties are assessed by the IRS to foster compliance. They are not intended to be revenue raisers. Taxpayers clearly did not intend to not pay their taxes and should not be penalized.

As my grandfather used to say, this is "dirty pool" and leaves a bad taste in the American taxpayer. Does anyone in Congress want to step up to bat for the American taxpayer?

Tax problems loom for many affected by the Recession

noreply@blogger.com (Jim) — Thu, 16 Dec 2010 03:12:00 +0000

As the recession continues, More Americans owe and cannot pay the IRS

Many believe the longest economic downturn since the Great Depression is over. However, for the unemployed and those who had to sustain by taking on debt, it seems like the recession never ends. It appears Congress may extend long term unemployment benefits that will help more than 2 million Americans whose benefits were due to expire this month. But, absent on the mind of Congress are any tax breaks for the unemployed in 2010 as well as any other significant tax relief for Americans affected by the recession. This is in contrast to 2009, when Congress provided some tax relief to the unemployed.

How does this impact taxpayers and the US Treasury? Since the recession, tax problems, specifically tax debtors, have been on the rise. More Americans are pursued by the IRS for unpaid tax debt. In fact, federal tax liens for the largest unpaid liabilities are up 41% in the past two years. The recession has created many of these tax problems because the tax laws are not gentle to those who are down on their luck. As a result, many in financial distress have created unintended tax problems for themselves. In many instances, these tax problems will manifest itself in the form of “balance due” letters from the IRS that cannot be paid.

Consider this:

The current unemployment rate in the United States remains high at 9.8%. In fact, it has remained over 9% since May, 2009. There are currently 6.3 million individuals who are long-term unemployment, i.e. over 27 weeks without work. Currently, there are about 8.5 million Americans collecting unemployment benefits. In 2008, the IRS saw a 48.5% increase in the amount of unemployment reported on tax returns. With higher unemployment in 2009, the amount will only increase. These benefits are taxable.

Many Americans are strapped with credit card and mortgage debt that they cannot pay due to unemployment. The Center for Responsible Lending reports that 2.5 million have already lost their homes to foreclosure and there are 5.7 million more homeowners who are currently at-risk for foreclosure. Homeowners in Nevada, Arizona, California and Florida will feel the cancellation of debt affects from home foreclosures the most. The debt cancelled may be all or partially taxable, especially if it is credit card debt or a refinanced mortgage.

With 15.1 million Americans currently out of work, many have no choice but to distribute from their pension or IRA to meet expenses, often long before they are ready to retire. For example, from 2007 to 2008, the number of taxpayers who reported a premature distribution to the IRS from an IRA increased 12.6%. From 2005-2008, IRA premature distributions reported increased by 63%. These distributions may be taxable and subject to an early withdrawal penalty. In 2008, 60% of reported pension distribution amounts were reported as taxable income.

Financial Woes may bring tax woes

These situations may signal future tax problems in addition to their current financial burden. In many cases, these problems are a surprise on April 15th because many believe that “if they do not make money, they probably do not owe taxes.” However, in these three situations that may not be the case:

Taxes due on unemployment compensation - In 2009, those collecting unemployment was allowed to exclude the first $2,400 from income. Not so for 2010- every dollar received for unemployment is taxable income. Adding to the problem: as the amount of unemployment paid is barely enough for most to make ends meet, most do not have any tax withheld on their unemployment income. On April 15th, many will be surprised that unemployment if fully taxable. They may be faced with a tax bill on top of catching up with their other bills.

Debt forgiveness must be reported on your tax return, and it may be taxable income- Unbeknown to many, when your credit card or mortgage debt is forgiven, this may be taxable income. At a minimum it needs to be reported on your tax return along with a calculation of taxability of the debt that was cancelled. Unless you meet one of the exceptions such as bankruptcy or insolvency, you may have a significant tax bill due. Most in this situation probably do not have the financial means to pay the potentially large tax bill. They definitely will have problems borrowing more money to pay the IRS as their credit probably has been damaged by the past creditors who wrote off the debt.

Taxes AND a 10% penalty for an early withdrawal from IRAs/401k plans - Many are misled to believe that when they have their IRA administrator withhold 20% of their early distribution for taxes that they have paid ALL of their taxes on this income. However, for those who have spouses with income or have other income during the year, 20% may not be enough to cover their taxes at the end of the year. Why? Add a 10% early withdrawal penalty on top of the income taxes due, and there is only 10% remaining to pay for the income taxes on April 15th. The additional 10% penalty for early withdrawal surprises many who believe that their money woes will allow them leniency on April 15th. There is no “financial hardship” exclusion to the 10% penalty. The result for many: a tax bill with little means to pay.

Recession aftermath: more cannot pay the taxes they owe

Alarmingly, there are an increasing number of Americans who cannot pay their taxes each year. Furthermore, the IRS is serious about investigating whether they can pay, and they are willing to enforce payment. For example, from 2005-2009, the amount that the IRS was actively collecting at the end of year increased 48% - that amounts to over $103 billion under IRS collections at the end of 2009. Furthermore, the Federal tax liens filed for those who cannot pay increased 53% to almost 1 million new liens filed in 2009. This adds to the economic woes of those trying to meet their financial obligations by downsizing property as they now have a tax lien that may hinder their sale.

For those making ends meet by getting cash from unemployment and premature distributions of their retirement plans or faced with debt forgiveness from unpaid loans, April 15th may bring another financial problem- a tax bill. With pressure on the government to collect more taxes, these people may go through another round of stress called the IRS.

If you owe, face it head on and get it behind you

If you find you owe, ignoring the problem will not help. In fact, if you owe more than $5,000 and you do not make arrangements to pay by an IRS installment agreement, you are almost certainly facing a tax lien, which will add to your woes by lowering your credit score by 100 points and complicating the ability to sell property.

When you know you owe, contact the IRS with a proposal. Look for an arrangement that meets your budget so you do not overextend yourself. When you are in an agreement with the IRS on your unpaid taxes, you will avoid the surprise of the IRS levying your bank account or garnishing your wages. And if you can pay your entire balance, look on the bright side. The current interest rate the IRS charges on unpaid balances is only 3%.

Don't Fear the IRS - Thanks for calling me out on this one....

noreply@blogger.com (Jim) — Fri, 22 Oct 2010 12:15:00 +0000

Recently, I received a comment from a reader who stated (and I paraphrase), "Don't scare me and don't always send me to an accountant to fix a problem."

The reader was anonymous - and the reader was correct. So, first, let me apologize to "anonymous" and to any other of my readers who does not feel empowered information on this website. To "anonymous"- again, I apologize profusely - this blog is meant to empower you. Specifically, the site is meant to do two things:

1. Empower consumers to solve their IRS problems through knowledge of how to fix specific problems, and
2. Equip taxpayers to solve their own problems with practical advice and helpful information

"Anonymous" was spot on in their comment. And I thank you for calling me out on it. Most people can solve their own tax problems themselves - and sometimes you just need some help. I hope IRSMind can help you or point you in the right direction to someone who can help you.

And thanks to all of you who have taken me up on the free Offer in Compromise help. I have benefited from providing this help by learning that people can solve their problems themselves, with a little help from a friend.

My offer still stands as well as if you have a problem you can always just ask for some help at IRSMind@gmail.com

Thanks again "anonymous" for calling me out - I hope I can help you in some way in the future.

5 Rules you must follow if you have an IRS Audit

noreply@blogger.com (Jim) — Fri, 22 Oct 2010 01:25:00 +0000

Each year, 140 million taxpayers file their tax return hoping that it will not be audited by the IRS.

If fact, a study done by the independent IRS help website easyIRS.com shows that being subject to an IRS audit is the biggest concern of taxpayers. Last year, that concern was a reality for almost 1.6 million individual and business taxpayers who were audited by the IRS.

This year, with increasing pressure from the Congress to shrink the “tax gap” (the difference between what taxpayers actually pay in taxes versus what they should pay), the IRS is more serious than ever in its efforts to examine if taxpayers’ returns are accurate or not.

If you are unfortunate enough to be subject to an IRS audit (that is about 1 out of every 100 taxpayers), there are 5 rules you must follow to get the best results from your IRS audit:

1. Prepare for your audit by knowing what the IRS knows – this means you should request what is in your IRS file to see if you and the IRS have discrepancies. Because most IRS audits are related to small businesses or specific IRS issue areas, you should also read and understand how the IRS will audit your type of business and/or your issues- these are called the IRS Audit Technique Guides. They are published at www.irs.gov. One issue that the IRS has recently expressed a great deal of interest in auditing is "cash intensive businesses." The Audit Technique Guide for these businesses is very informative on what to expect in this type of audit.

2. Know who in the IRS is auditing you- this matters! Correspondence and office audits are very limited in scope- usually looking at one to three issues on your tax return at most. However, field audits are more extensive and are aimed at finding unreported income. Field audits are rare, so if you have a “Revenue Agent” at your door, you may want to consider getting experienced, professional help. Most correspondence and office audits can be handled yourself without expensive professional representation.

3. Do a mock audit of yourself- review your return and reconcile each line item with your documents. If you do not have documents, try and reconstruct them. Know however that certain deductions need contemporaneous documentation (an example is charitable contributions in which you must have your documentation at the time your file- reconstruction is not permitted). At the least, if you do not have documentation or cannot reconstruct your receipts, provide detailed workpapers and explanations of what was the entry on the return. The IRS is allowed to take “oral testimony” to substantiate deductions. Even if they do not allow the deduction on your return, they may waive any accuracy penalty if you can show your diligence in preparing your return.

4. Ask for everything in writing and respond with everything in writing – this will eliminate confusion and make the audit progress quickly and methodically. It will also alert you to the issues that the IRS is questioning. The IRS requests information and states what they are auditing on a specific form called an “Information Document Request” or “Form 4564.” Insist that all requests for information be in writing and on this form. The response to the IRS should also be in writing, clearly answering the questions posed and providing explanations of any documents attached. Keep a copy of all correspondence as it will be your “evidence” should any dispute arise.

5. Ask the IRS for a second opinion- your auditor’s decision is not final. So don’t fret if you owe at the end – most people owe at the end of IRS audits (about 9 out of 10 according to the IRS). However, what most people do not understand is that the decision of the auditor is not final if you request an “appeal” in a timely manner. When the IRS gives you its final decision, called a “30-day letter,” you have exactly 30 days to request someone else to review the auditor’s decision. The reviewer, called an IRS Appeals Officer, can reconsider your facts and may offer you an “Appeals Settlement.” The “AO” can offer this alternative because they can consider the “hazards” and nuisances of the IRS having to litigate your case. So, if you have an argument that the auditor would not consider, including your oral testimony, getting a second opinion may help greatly.

After your audit is over make sure you keep your records of the audit for at least 6 years. Keep these records longer if you have to pay any additional taxes owed in an IRS installment agreement or other alternative payment arrangement. You never know if an IRS interpretation of a rule will be overturned and you can request the IRS to reconsider your audit.

One final piece of advice with an IRS audit: ignoring an audit is not a good idea. It ultimately leads to more taxes owed and more years being audited.

Follow these 5 rules in an audit and you will get the best results.

On May 15th, the IRS will solve your tax problem...

noreply@blogger.com (Jim) — Tue, 04 May 2010 12:33:00 +0000

If you choose to take the IRS up on its offer, they will be open on Saturday, May 15th, 2010, in at least one location in each state.

In its press release on May 3rd, 2010, the IRS stated that 88% of individuals who came to the March 27th "open house" had their issue or notice resolved that same day.

If you miss this "open house", don't worry, the IRS plans two more before the end of June: June 5th and June 26th.

This is very timely assistance by the IRS. The IRS has been concerned that the poor economy would lead more taxpayers to stop filing. As of April 15th, the data seems to support the IRS concerns. When compared to last year, there was a 3% reduction in the amount of returns filed as of April 10th (that is over 3 million taxpayers). Even more timely are the initial "balance due" notices (IRS Notice CP14) that are starting to arrive in taxpayers’ mailboxes. These notices, for those who file on April 15th, will arrive between now and the end of June. More urgent notices will continue if the taxpayer does not pay. Eventually, if the account is not satisfied in full or an agreement made, the IRS will attempt to collect on the unpaid balances.

The IRS is now trying to avoid a repeat of what occurred in 2007 when over 29 million people had a "balance due" on their tax return when they filed. Most of them paid when they filed, but millions did not and had to go into IRS collection. In fact, over 9.2 million new taxpayers entered IRS collections in 2009. More should be expected in 2010 if the IRS does not attempt a pre-emptive strike against those exiting the system.

Will it be easier to solve my problem with the IRS at their "open house"?
Only if you are prepared to solve your unique problem. More than likely, many of the problems addressed in the March 27th open house were centered on tax preparation issues for the returns due on April 15th. The next three open houses will see more “problem” than “preparation” issues.
What can you do to prepare?
If you are going to the IRS about a notice, here is how to prepare:
- bring a copy of your notice
- have your identification ready to prove you are the taxpayer
- bring a copy of your tax return in question, as well as a copy of the previous year's return as it may help if there is an error notice on your return
- bring the information requested on your notice. If you do not understand what you need to bring, call the IRS and ask them
If you owe back taxes, here is how to prepare:
- have a copy of your 2010 return, or your extension (if applicable), to prove you are in filing compliance (you cannot solve a tax debt problem without having all of your returns filed)
- bring a copy of your notice
- educate yourself on options to pay the IRS
- bring your financial information, including all of your income, expenses, assets and liabilities if you are proposing to defer payment to the IRS or paying less than the allowable amounts, per their guidelines
- proof of any hardship you are having, including unemployment or high medical expenses

What can the IRS do in an "open house" that it cannot do over the phone?
Basically two actions:
1. They can look up your account directly on their computers. You can go over your account transcripts with the IRS line by line. An experienced IRS representative can isolate your problem quickly and understand what is necessary to solve it. If you ask, they can also provide some immediate relief. For example, if your account transcript has penalties assessed, you may want to request penalty relief from the IRS representative directly. If you do this by mail, it may take up to four months.
The IRS representative can grant it immediately under certain conditions.
2. They can take immediate action on your account because they can see your documents in person. If you deal with the IRS by phone or mail, your documents could be lost or interpreted by different people. This will delay your request or give you a false impression that everything is completed.

Advice to move forward
If you ever decide to see the IRS to solve your problem, follow these steps:
- Be prepared
- Be educated on what you want and what options are available to you
- Document who you spoke with, when you spoke with them, and their badge number
- Keep a copy of everything that you gave the IRS
- Understand what happens next when you leave the IRS
- Know what you need to do next and when you need to do it
- Be prepared to move quickly after you leave. The IRS now has your information.

You should follow these steps whenever you contact the IRS, not just for an "open house."

If you are prepared to solve your IRS issue yourself, take the leap on May 15th.

Identity Theft and Taxes- It happens to 1.2 million of us - and the IRS has no power to stop it- here is how you can!

noreply@blogger.com (Jim) — Thu, 29 Apr 2010 01:20:00 +0000

In 2007, over 1.2 million "employees" had someone else using their Social Security Number. Identity theft cases at the IRS Taxpayer Advocates Office increased 93% from 2008 to 2009.

But that is not the worst of it.

If your identity is being stolen for employment purposes, the IRS cannot stop it (keep reading to see what you can do about it!). The IRS cannot notify the legitimate owner of the Social Security Number that he or she may be the victim of identity theft and take steps to address employment-related identity theft issues. So the misery lives on for the person whose SSN was stolen.

The reason that the IRS cannot notify the owner is due to very strict disclosure laws put on the IRS in identifying taxpayer information to third parties.

In addition, the IRS does not have sufficient enforcement resources to address most of these cases and it would not be worthwhile to pursue employment-related identity theft cases for unreported tax liabilities because, according to IRS officials, the taxes owed on most of these cases are not significant.

Tell that to the person who annually is struggling with their identity being stolen and having to worry about the IRS saying their tax return is incorrect. Here is what can and likely does happen to those who are victim of employment-related ID theft: When you do not report all of your Forms W-2 or 1099 income on your tax return, the IRS issues you a CP 2000 - Notice of Income Underreporting and proceeds to access you additional taxes. Those who have prior ID theft and have reported and proven it to the IRS have a "ID Theft" indicator on their account which may avoid additional inquiry into their account by the IRS. Those who do not have this ID Theft Indicator incur the wrath of an IRS inquiry or even an audit.

But here is Congress to the rescue.

In an effort to get through the IRS disclosure rules, Congress is proposing legislation that will allow the IRS to contact a victim of ID Theft if it arises in an IRS investigation.

Now let's be practical:

- the IRS is under-resourced in this area- it appears that the Taxpayer Advocate is the preferred route of many, and with ID Theft growing at 93%- it will soon be overwhelmed
- the victim of the ID theft usually brings the allegation forward - and after the damage has been done; if the IRS is to be proactively effective in ID Theft, it should implement procedures to notify individuals on wage and income statement irregularities before the damage is done

Now, here is what you can do about it-

If you believe you are a victim of employment related ID Theft or just want to check, you can do this just after you file your tax return on April 15th each year.

Here's how:

Each year the IRS keeps all of your Wage and Income information on a document called an "IRP". The IRP for all of your previous year's information on wages and other tax transactions reported under your SSN. You can get a copy of this by calling the IRS at 1-800-829-1040 and asking the representative to send it to you. It is normally available for the previous year around Memorial Day (i.e. 2009 wage and income statements are available to you around June 1, 2010).

When you get the Wage and Income statement, look at it closely for someone else using your SSN for employment purposes. The wage and income statement will have the name of the employer or payor and their address and employer identification number. You can use this to track down the employer and let them know that they have an employee that is using your SSN!!

By taking these actions, you can stop the cycle. The best news in this approach is that it is free. You will just need to do the detective work with the use of IRS documents.

2010 Tax Law Changes will provide relief for more with tax debt burdens

noreply@blogger.com (Jim) — Tue, 27 Apr 2010 02:17:00 +0000

The Taxpayer Assistance Act of 2010, as proposed by the House Ways and Means Committee, has a critical amendment to section 7122 of the Internal Revenue Code.

What is section 7122 reference?
The Offer in Compromise (referred to by most as "Offer" or "OIC") for those with unpaid tax debts.

Specifically, Section 202 of the Act (not yet passed into law) removes the section 7122(c) "down payment" requirement of 20% of the amount of the Offer to the IRS to settle their tax liability. This would repeal the 2005 TIPRA law that required the 20% non-refundable down payment that was effective for all Offers submitted on or after July 16, 2006.

What was the the 2005 TIPRA (enacted in 2006) law's effect on the Offer in Compromise program?
The statistics speak for themselves. In 2005, there were almost 5.9 million new IRS inquiries into back taxes owed. In 2005, there were also approximately 74,000 OIC filed (about 12 filed an OIC for every 1,000 who owed and were being pursued by the IRS) with about 19,000 being accepted (about 1 in 4 allowed based on what was submitted).

In comparison, 2008 OIC statistics show the effects of the 20% down payment requirement. In 2008, there were 7.1 million new tax debtors being pursued by the IRS with only approximately 44,000 OIC submitted (that is a decrease to 6 out of every 1,000) with the same amount (25%) being accepted. Despite economic slowdowns and more qualifying in 2009, there was not a measurable increase in OIC submitted (about 7 in 1,000 who owed submitted but only 21% were accepted).

In fact, the IRS Taxpayer Advocate cites the 20% down payment requirement as the major obstacle for tax debt relief. The TAO states that this provision is actually a deterrent from tax compliance because it does not encourage those who are "over their head" to stay in the tax system. Also, the TAO argues the economics of the OIC: the IRS would get more money from the OIC v. the little the Treasury would collect if they started on a payment plan (approximately 39% of taxpayers incur additional tax liabilities that go unpaid).

The bottom line: when the 20% down payment requirement is repealed, more taxpayers will try the Offer in Compromise because there will be no significant barriers.

When does payment deferral or "currently not collectible" end with the IRS?

noreply@blogger.com (Jim) — Tue, 27 Apr 2010 01:46:00 +0000

If you cannot pay your taxes, the IRS may have (at your request and providing of evidence to support not being able to pay) put you in currently not collectible status (IRS calls this "CNC" or "Status 53"). What this means is that you cannot pay now, but you may be able to pay later.

The question for most who obtain this status is: when will the IRS start to ask me to start paying again?

The answer lies in how the IRS put you into CNC.

The IRS can put you in CNC for several reasons:
1. You proved your basic living expenses (as allowed by the IRS) is greater than your income, or
2. The IRS could not locate you or your assets and "defaulted" you into CNC due to little or no collection potential

For our purposes, I will assume dituation #1 above - that your documented living expenses that you gave the IRS is greater than your income. When the IRS eventually grants you CNC status (after you have provided extensive documentation of your income, expenses and assets), it will be reviewed annually based on the total positive income ("TPI" is the gross income amounts you report on your return - not just the amounts that are taxable) you reported on your return OR the total positive income reported to the IRS under your SSN (if you did not file a return).

The IRS will assign a "closing code" to your CNC approval that will correspond to your annual expenses that you provided to the IRS to meet your basic, allowable living costs. These closing codes are in $8,000 increments starting at $20,000 and ending in $84,000. For example, if you were able to prove $39,000 a year in basic living expenses as allowed by IRS standards and you had income under that amount and no assets to liquidate, the IRS would put you in CNC with closing code "27" (TPI would have to be above $44,000 - i.e. you would not leave CNC until your TPI is above $44,000.

So, when will the IRS ask you to pay again? The answer is: when your income exceeds your expenses.

IRS must release levy in case of hardship- even if you have not filed all your returns

noreply@blogger.com (Jim) — Mon, 26 Apr 2010 02:44:00 +0000

In a recent Taxpayer Advocate memorandum to its employees, the TAO has determined the IRS should follow a very unusual ruling in the Tax Court case, Vinatieri v Commissioner. In fact, the TAO informs its employees that it will grant relief to such taxpayers that are similarly defined as in the Vinatieri case.

Let me explain the situation:

- Taxpayer has tax debt
- By the IRS determination, taxpayer qualifies not to pay on the debt (i.e. qualifies for "currently not collectible")
- Appeals Office will not allow CNC because taxpayer did not file 2 years of required tax returns
- The IRS follows its procedure of requiring the taxpayer to be in "full compliance" - i.e. filed all required tax returns and up to date with withholding/estimated tax payments before hardship relief can be granted - and denies relief to the taxpayer
- Taxpayer disagrees and petitions the US Tax Court for relief
- Taxpayer wins and CNC and levy relief is granted despite all required returns not being filed.

Why is this ruling important?
This is a clear departure from the IRS "full compliance" requirement. There have been many individuals who have been denied levy relief and CNC due to unfiled tax returns. It will be interesting if the IRS follows this case or it requires all of these situations to go the the Taxpayer Advocate.

In any event, it is important to get all returns filed. In fact, it may "bounce" your CNC status if the unfiled returns trigger additional liability and the IRS has not coded the unfiled tax "modules" for advanced CNC approval. In fact, the IRS can start a "Taxpayer Delinquency Investigation" for not filing the required returns- and that is not a good option compared to voluntarily filing.

Let me know if I can help.

A Free Offer....if you Qualify for an Offer in Compromise

noreply@blogger.com (Jim) — Mon, 26 Apr 2010 00:37:00 +0000

Last year, only 10,665 people recieved an Offer in Compromise on their tax debt. That's right- only 10,665 - and there were over 16 million people being pursued at one-time by the IRS for debt owed.

So your chances are very small - or are they?

Many people are suffering right now. Unemployment is right at about 10% nationwide with some areas much worse. A record number of new tax debt accounts are expected by the IRS. In fact, probably over 30 million people will file this year and owe: most will pay- some cannot.
Maybe some cannot pay the fees needed to consider an Offer. Maybe some people do not want to open up a can of worms with the IRS. Whatever the reason- I think there are many more who qualify but have no where to turn to see if it is right for them.

So here is the Offer-

I will file an Offer in Compromise - Doubt as to Collectibility - for free if you qualify. You would just have to pay the IRS the amount of the Offer in Compromise if you decide to file for a settlement. That's right- for free- no gimmicks- just straight talk: Do you qualify? If so, what would be your offer to the IRS- and I will work with you to file it. For nothing. And your conversation with me is confidential. In fact, if you want, you can never provide me your name in this process (it may limit my ability to take you through to the end- but you can see this for yourself).

What are my qualifications to help you?
I am a CPA- licensed in North Carolina. I worked for the IRS for 19 years. And most of all, after my IRS years, I have represented many people successfully before the IRS. If you want, you can voir dire my qualifications on the phone or by e-mail with some questions about your situation if you like.
The point is this: if you qualify, I want to help you. You will have to pay the IRS OIC amount- but you will have no fees from me. I have no desire to make money off of your plight.

Just one piece of consumer advice- do not hire a firm to do this for you without telling you everything. the OIC is not complicated, and if you qualify- I will tell you and walk you through it, step-by-step.

If you would like to take me up on my offer- e-mail me at Free.OIC@gmail.com - I will get back to you that night.

This is not a gimmick, a sales ploy, or any other hidden offer.

If I cannot help- I will point you in the right direction- promise.

"Hammer Time" for MC Hammer....

noreply@blogger.com (Jim) — Fri, 14 Aug 2009 18:37:00 +0000

Let me attempt to guess on “Stanley Burrell’s” plight with the IRS….

Normally the IRS can only collect for 10 years from the date of assessment…however, Mr. Burrell or “MC” still has what the IRS states “a claim against his assets” in the form of a tax lien.

Here is what I think happened and how the government could win:

1. MC’s taxes were from “15 years ago” but the IRS collection statutes may still be effective- they still could be within the 10 year IRS collection statute of limitations if he:
a. Filed bankruptcy- he indicated he did file in the past- this would extend his collection statute and/or
b. Filed late or was audited- if MC filed late taxes or was audited and the assessment was later
2. Bankruptcy may not have helped him abate his tax liability- i.e. he did not get any taxes discharged in bankruptcy- this would be the case if the taxes were recently assessed before bankruptcy or they were of the nature that cannot be discharged, i.e. payroll taxes
3. His recent success may have caused the IRS to “reduce his lien to a judgment”- the 10 year collection statute can be extended by the IRS if, at the end of the 10 years, the IRS wants to sue MC for his liability and obtain a judgment to collect- this would make him collectible to the Federal Government for the judgment amount

Without checking the County Courthouse records for MC, this tax lien would not have been a recent filing- however, a judgment may be something more recent. Given the timing, it appears likely that this is a judgment. In that case, the IRS and the Department of Justice take great efforts to ensure that the liability is true and correct and MC has his day in Court. Maybe he does not like the decision. In any event, as more facts emerge- so will the final outcome.

Please do not plan to die in 2010 just to save estate taxes....

noreply@blogger.com (Jim) — Sun, 09 Aug 2009 13:17:00 +0000

In 2010, there will be a short window for individuals to pass their estates tax-free to their decendents. The problem is it only lasts for 2010 and then Congress has the estate tax back on again. I do not know about you, but dying is not in my "tax planning" reportoire.

There is a great article that has been recently posted on the facts and myths about the estate tax. It is a good read to summarize the state of the estate tax.

Do me a favor, do not plan to use the estate tax provision in 2010. Death and taxes are inevitable, but doing the former to save the latter is not good for your health.

Reviewing legalbitstream.com, a comprehensive tax law database

noreply@blogger.com (IRS Mind Admin) — Fri, 19 Jun 2009 15:34:00 +0000

So, Jim sent me an email earlier this morning to share that he and Tal had found a Tax Law and IRS Material database called Legal bitstream. This site has some value and some opportunity for improvement. Before we get into that, here is a brief description of Legal bitstream.

The site is owned and operated by Mayfield Publishing Company, located in Houston, TX, and has been live since 2003. It offers the ability to search all Tax cases from 1990 to the present. Also, you have the option of searching various IRS materials, including revenue rulings, executive orders, and Treasury decisions. The IRS materials date back to 1954, depending on the type of materials. In addition to those two database search capabilities, Legal bitstream provides links to government pages such as the Internal Revenue Code and IRS Forms & Publications.

Value

A comprehensive one-stop shop for tax law and IRS-related information
The ability to search all of these documents for particular keywords and phrases
It's Free!

Opportunity for Improvement

The search feature needs some work. Search results include any documents that contains your keyword phrase. This means that it could be mentioned one time, way down near the bottom, as a part of the case description, while you were looking for cases that have that phrase as part of the subject (perhaps the plaintiff or defendant). Being able to search the subject and not the detailed description could help users find information much quicker.

Think about when you do a book search in a library database. It gives you the option of isolating your search among book titles, authors, publishers, or descriptions. If you don't choose any of those options, you can still search among all of those segments simultaneously. Having the same functionality on this site would be extremely powerful and would add so much value to what's already there.

Additionally, search is the only way to find information. There is no browse feature. So, you better know what you're looking for ahead of time.

Give Legal bitstream a shot. On the About Us page, they remind you that the site is free to use...for now. They are still deciding if and when this will be a fee based site.

IRS Debt...Avoiding the headaches

noreply@blogger.com (NoElement) — Wed, 17 Jun 2009 15:30:00 +0000

I currently manage a client base that typically owes the IRS in excess of $10,000 and one of the most common issues that I run into when trying to explain what options my clients have in resolving their tax debt is getting them to understand that they may have to adjust their lifestyle in order to obtain a successful resolution.

So what does "adjusting their lifestyle" mean? It means that when you owe the IRS, especially if you owe in excess of $25,000, you more than likely are going to have to give up some luxuries or some expenses that you have grown accustom to.

You see, the IRS is not a creditor and they are not a bank. Your debt with them is more serious and carries more consequences than any debt that you may owe, including credit cards and mortgage payments.

I often hear my clients complain that they cannot afford what the IRS is trying to make them pay per month, however what they often fail to understand is that the IRS is not going to allow you to have an extravagant lifestyle when you owe them money.

Now, that is not to say that most of my clients live an extravagant lifestyle, however the way the IRS views this, especially if you owe for multiple years and well in excess of $25,000, you would not have been able to afford the lifestyle that you are/were living had you actually paid the taxes you owed.

This is especially a problem for my clients who were from the mortgage or financial services industries. They once made enormous salaries, and in the process, also incurred enormous expenses, such as large car payments, huge mortgage payments and increased their debt load on their credit cards. Well, now their income is drastically less, however they still have the large expenses that they acquired during their booming years and to top if off, now the IRS is enforcing collection against them.

The problem is that the clients, are spending every nickel they have to pay the $900 a month car payment, the $4500 a month mortgage payment and their $750 a month credit card bills, but they are still not paying the IRS. They, then don't understand why the IRS wants them to pay $1200 a month, when from their perspective they are broke. In actuality, yes, they are broke, but from the IRS's perspective they can afford to make a payment. Why, because they are living above their means and the IRS isn't going to allow them to live in excess of their means when there is a balance owed to them.

First, the IRS isn't going to allow the credit card payment at all. That means the client can pay at least $750 per month to the IRS. Next the IRS isn't going to allow the entire car payment nor the entire mortgage payment either. The IRS will allow up to $489 for a car payment and the housing and utility standards for the clients area will determine the monthly total that they will allow. Any amount in excess of the allowable living standards, the IRS will construe as disposable income and will want it as part of an installment agreement.

In short, do yourself a favor... if you owe the IRS, take a good look at your expenses that you are paying on a monthly basis and ask yourself...."if someone owed me money, would I allow them to pay this expense before they paid me?"

Have an Offshore Account- It is Official- the IRS will be geared to chase you...

noreply@blogger.com (Jim) — Thu, 11 Jun 2009 12:17:00 +0000

It is official...the IRS has asked the US Senate for over $128 million to hire 800 new IRS Agents to track down high income Americans who hide their assets overseas.

According to Treasury Secretary Timothy Geithner:

"A total of $332 million would be devoted to new Internal Revenue Service (IRS) enforcement efforts, including $128.1 million to add nearly 800 new IRS employees to combat offshore tax evasion and improve compliance with U.S. international tax laws by businesses and high-income individuals. Another $130 million would go to bolster the security of the IRS information technology, improve the efficiency of its business systems and upgrade its fraud detection capabilities."

The IRS appears, at least politically, serious about chasing down clandestine foreign bank accounts. Whether this will bear any fruit remains to be seen.

The deadline for filing the Treasury Form TD F 90-22.1 is June 30th. Miss the deadline or past deadlines and the IRS promises it will use its resources to find you and enforce penalties for non-compliance.

Unemployed and Owe Tax Debt?

noreply@blogger.com (Jim) — Mon, 08 Jun 2009 02:01:00 +0000

Times are tough.

Here are the obvious economic signs as of June 1, 2009:

1. Unemployment is almost at 10% and is expected job losses are to continue at least through the end of 2009
2. Property values are dropping in most sectors of the United States
3. The Stock Market is almost 5000 points from its all time high
4. Businesses are failing as the economy weakens
5. The price of gas is approaching $2.50 a gallon nationwide again after a relief period that saw prices under $2 for some time (I still beleive that this is the most significant economic indicator for the past forty years and beyond until we rid ourselves of dependency on a foreign cartel- but that is another story)
6. Savings for Americans is dropping in order to pay for their rough times

Americans have sometimes coped with these tough times with certain transactions that, at the end of the year, translate into a significant tax bill that they are not able to pay. Here are some common transctions that are resulting in tax debt:

1. Liquidating 401(k)retirement accounts and Individual Retirement Accounts prematurely- these transctions, if classified as premature distributions, result in significant tax bills due to putting the recipient into a much higher than normal tax bracket (the highest bracket is 38%) if their distribution is significant PLUS an additional 10% penalty on early withdrawal of the pension/IRA funds. This rate can be as much as 48%. Becuase the "normal" withholding rule is only 20% of the distribution, this distribution can leave the recipient with a large tax bill at the end of the year.
2. Cancellation of Debt Income due to not paying credit cards or foreclosure on your home/other property- when credit card and mortgage/debt holders stop paying their debts, the lender may "write off" the debt or foreclose on the property. This transaction will lead to cancellation of debt income. Whether this income is taxable or not is based on a complex set of rules. If the income is taxable, it can have a resulting tax bill that significant. In fact, the IRS is expected to have almost 2 million debt cancellation income transctions reported to them in 2008. There is no federal income tax withheld on these transctions and thus, a potential tax bill if the income is fully or even partially taxable.
3. Changes made to withholding or not making required estimated tax payments- many Americans are changing their federal income tax withheld from their paychecks (this is done by changing the exemptions and/or filing status for withholding on a Form W-4with the employer). Furthermore, business owners and individuals who have significant investment income, are foregoing paying their quarterly estimated tax payments. Thus, at the end of the year, there is a signifcant tax bill due if their business income or investments have produced gains.
4. Extending unemployment income- normally, most people do not realize that unemployment income is taxable. In fact, there are many new filers for unemployment that they may beleive that the income will not be significant or even taxable. To make matters worse, most people who draw unemployment have no federal income tax withheld. An extended period of unemployment may have taxes due from the sources of income that do not have withholding, like unemployment, which results in a tax bill.
5. Businesses not remitting their payroll taxes to the IRS- businesses who are also "employers" are required to withhold FICA and federal withholding from their employees and remit these funds over to the Treasury. However, in tough times, some of these businesses withhold the funds, but do not pay them to the Treasury. Not paying withheld employment taxes to the IRS has serious consequences. The IRS takes this non-payment of taxes as the highest collection priority as the Treasury is paying refunds to taxpayer/employees despite not having the funds that the employer has not sent the IRS. If you are in this position, you have serious IRS problems.

IRS Levy, Certified Letters, Wage Garnishment...Don't wait

noreply@blogger.com (NoElement) — Wed, 03 Jun 2009 15:55:00 +0000

It's that time of the year for the IRS to being stepping up their enforcement. So, what does that mean? It means liens and levies...lots of them.

So what do you do if you receive a notice of intent to levy?
Well, first don't wait and do nothing, because they are coming and they are not going to wait on you. You need to be proactive and do several things.

1. Make sure all of your tax returns are filed, at least for the past 6 years. Why, you ask? Because the IRS is going to require them before they stop any enforced collection or release any type of levy.

If all of your returns are not filed, then find a tax preparer who can file outstanding returns and one who will verify your income against IRS records to ensure they are properly prepared. Make sure that they also date stamp your returns to ensure IRS compliance is met.

2. Determine the total amount that you owe for all years, not just the years that are listed on the levy notice if you know you owe for more years. This will be important to getting your levy released or to prevent the levy before it happens.

Why is this important? Because the IRS is going to require that you resolve all of your outstanding tax issues at once before they are going to release or stop any levies.

The total amount of taxes owed for all years combined will help determine what options are available to you to resolve your tax debts. The rest is determined by your current financial situation.

If your liability is less then $25,000 in total for all years, then the simplest and easiest resolution to obtain to prevent or release any levies is what is know as a "Streamlined Installment Agreement".

This will allow you to pay of your entire liability at a set payment per month over a 60 month period. As long as you make that payment then the IRS will simply leave you alone.

If you owe over $25,000 or if you cannot afford to make the streamlined payment amount then be prepared to go through a full financial investigation. This investigation will compare your current household income and expenses to what the IRS will allow as necessary living expenses for the area in which you live in. There are expenses that the IRS allows and there are expenses that the IRS does not allow, such as credit card payments.

So if you owe less than $25,000 and the only reason you cannot afford the streamlined amount is due to a monthly credit card payment, do yourself a favor, save yourself some time and headaches by forgetting about the credit card payment and agree to the streamlined payment, because the IRS isn't going to allow the payment anyway if you decide to go through the full financial disclosure, and they will then want at least the amount of that payment as a monthly payment to them and potentially more.

If you don't feel you understand the information that the IRS is requesting from you or you don't understand the documents and forms they are sending to you, then seek professional help.

In General, you should seek help anytime you owe in excess of $25,000, as it substantially more difficult to get into resolution with the IRS when you are in excess of $25,000.

Don't seek someone who is going to promise you a "settlement" as there is a 99% change that it will never happen. They know it, and you shouldn't fall for it. Find someone that will be brutally honest with you and tell you exactly what can be done, rather than giving you false promises that will never come true.

Wage Garnishment? Wage Levy?...Here's what to do

noreply@blogger.com (NoElement) — Wed, 20 May 2009 15:49:00 +0000

Do you have or are you about to receive a wage garnishment, otherwise known as a levy?...Here's what to do.

If your employer has already received the notice of the levy, IRS form 668W, or 668A, then your next paycheck will be drastically affected by the levy. If you are a W-2 employee, the IRS can levy you for up to 85% of your gross income. If you are self employed and receive 1099 (or "independent contractor") income then the IRS can levy you for up to 100% of your income.

This is obviously going to affect your ability to pay your normal household bills. In order for the levy to stop, you have to secure a release of levy from the IRS.

Here's how....

First, you are going to have to make sure that you are compliant with all of your tax return filings. Meaning, you at minimum, are going to have to make sure that you have filed all returns from 2002 through 2008. If you are missing any of those tax returns, the IRS is not going to even consider releasing the levy, i.e. until you have met the IRS's policy of compliance. So, get your returns prepared and get them done quickly and accurately. HINT: you will want to make sure the income on the returns match up to your IRS Wage and Income Transcripts or IRP files for each tax year.

Next, you will need a resolution for your liability. Meaning, that you will have to secure with the IRS either an Installment Agreement, a Currently Not Collectible status, or submit an Offer In Compromise. Once the resolution is established and agreed to by the IRS, you will need to then have the IRS fax a Release of Levy to your payroll department.

Once the Release of Levy is received by your payroll department, your next paycheck will not be affected by the levy. Now, some levy releases are full releases and some are partial releases. It will all depend on your individual circumstances, total liability, history of compliance and the type of resolution secured.

The best way to keep a levy from happening is to resolve your tax issues prior to the levy being issued. The IRS will send notice's to you of their intent to levy prior to the issuance of the levy. This preview comes in the form of certified mail, notice CP504 Notice of Intent to Levy. If you receive this letter, you have a limited amount of time before the IRS starts to issue levies to your employer, your bank, or your accounts receivable. Don't wait, get your situation resolved immediately or risk losing all or the majority of your income!

IRS Tax Debt and Collection: What Are My Options?

noreply@blogger.com (Jim) — Fri, 15 May 2009 21:53:00 +0000

Just a refresher for all who want a concise summary of the options that are used most of the time to resolve tax debt and IRS collection issues.

Owing the IRS money can be overwhelming, especially with threats of liens and levies hanging over your head. You know you should take action and get your situation under control, but what can you do? You don’t have the money to pay the balance in full, but ignoring the IRS is not an option.

Fortunately, there are several resolution options available to tax payers, and the right one for you will depend upon your current financial situation. Please note that the options below do not argue the validity of the tax liability, but are agreements with the IRS to help resolve the tax debt you owe. Although full paying the liability is often the best option (and cheapest), most people are not able to acquire the funds necessary to do so. If you are one of these people, one of the following options might work for you.

*Installment Agreements
*Streamlined Installment Agreement
*Installment Agreement based on ability to pay
*Lifestyle Adjustment Installment Agreement
*Partial Pay Installment Agreement
*Currently Non-Collectible
*Offer in Compromise
*Other options

It is important to note that each of the agreements above will require past, present and future compliance. Generally, this means that you must file at least the past 6 years tax returns, the current year’s tax return, and you must file and pay all future years’ taxes. Failure to do so will cause you to default any agreement that you have with the IRS. Also, it is important to know that interest will continue to accrue until the balance is paid in full, but will accrue at a lesser rate once an agreement is set up.

Installment Agreements- Monthly Payment Plan

An installment agreement is the most common resolution used by taxpayers who owe money to the IRS but cannot afford to full pay. Basically, an installment agreement is a monthly payment plan to pay off the balance due. There are many different types of installment agreements as listed below.

Streamlined-Installment Agreement:

A streamlined installment agreement is a five-year payment plan for those who owe less than $25,000 to the IRS. In order to qualify for this type of agreement, the taxpayer must meet the following criteria:
*File all tax returns for the current year and at least the past 6 years
*Provide employer name, bank name, and date of birth to the IRS
*The collection statute does not expire within 5 years
*The assessed balance is below $25,000
*The taxpayer can afford the required monthly payment amount, which is equal
to the total liability divided by 50 months (Ex: $24,000/50= $480 per month).

Ability to Pay Installment Agreement

For taxpayers who cannot afford to pay the streamlined installment amount, the IRS will consider setting up an installment agreement based on the individual’s current financial situation or their “ability to pay”. The IRS will look at an individual’s monthly income and expenses to determine the amount of money left over each month. This “leftover” amount is known as monthly disposable income. Generally, the amount of monthly disposable income will be the amount of your monthly payment.

This type of agreement will require a completed and signed IRS Collection Information Statement, Form 433-A or Form 433-F (depending on your situation) and all accompanying documents. The IRS will use these documents to verify the monthly payment amount. Please note that the IRS will only allow necessary living expenses and the amounts allowed as necessary may be limited by local and national allowable living expense standards. In order to qualify for this agreement, the taxpayer must meet the following criteria:
*Satisfy to the IRS that you do not have assets to pay the liability in full
*File all tax returns for the current year and at least the past 6 years
*File and pay all future taxes
*Ensure that your payment is received by the IRS timely each month
*Submit all requested IRS forms and financial documentation.
*The liability will be paid in full before the collection statute expires

Please note that the IRS will generally file a tax lien on you if you enter into an installment agreement on any ability to pay installment agreement. In some instances if your liability is below $25,000, the IRS will not file a tax lien. In any event, you should expect a tax lien on any ability to pay installment agreements.

Lifestyle Adjustment
Occasionally taxpayers might qualify for a specific resolution known as a Lifestyle Adjustment Installment agreement. Many taxpayers find that their necessary living expenses are above the local and national standards but are unable to pay the required amount due to other financial obligations, such as a high mortgage or car payment. The IRS will consider allowing the taxpayer to make monthly payments based on his/her actual expenses for 12-months to give the taxpayer time to adjust their lifestyle (ex: refinance a home or find a car with a lower car payment) to reduce their monthly expenses to the level of the local or national standards. Then, the monthly payment amount will increase to the amount of the monthly disposable income based on the local and national living expense standards. The requirements for this type of agreement are listed below:
*Satisfy to the IRS that you do not have assets to pay the liability in full
*File all tax returns for the current year and at least the past 6 years
*File and pay all future taxes
*Ensure that your payment is received on time each month
*Submit all requested IRS forms and financial documentation
*The liability will be paid before the collection statute expires
*Pay a lower payment for one year and then increase payment amount

Please note that the IRS will generally file a tax lien on you if you enter into this type of installment agreement.

Partial Pay Installment Agreement

A partial pay installment agreement follows essentially the same process as a regular installment agreement but will not allow the taxpayer to pay the total liability over the life of the collection statute. For example, if you owe the IRS $50,000 and the collection statute is 36 months away and your monthly disposable income is $300, you will not have the chance to pay off the total liability before the collection statute expires (i.e. you will pay only 36 months @$300, or $10,800- a “partial” amount of your total liability before the liability expires due to statute).

This type of agreement is similar to an Offer in Compromise, but does not require a down payment nor does it extend the collection statute.

Please note that the IRS will review this type of agreement every two years to make sure that the taxpayer’s financial situation has not improved. The IRS will also file a lien if this agreement is accepted.

Requirements of a Partial Pay Installment Agreement:
*Satisfy to the IRS that you do not have assets to pay the liability in full
*File all tax returns for the current year and at least the past 6 years
*File and pay all future taxes
*Ensure that your payment is received on time each month
*Submit all requested IRS forms and financial documentation
*The liability will be paid before the collection statute expires

Currently Non-Collectible (“CNC”)

If your current financial situation does not allow you to reasonably make monthly payments and you do not have any assets to borrow against and pay the liability in full, the IRS will place you into a currently non-collectible status. While you are in this status, you are not required to make monthly payments towards your tax liability and the IRS will stop most collection activity, such as levies. This type of agreement will require a completed and signed IRS Collection Information Statement, Form 433-A or Form 433-B and all accompanying documents to verify that you cannot afford to make monthly payments.

Also, this is a last resort for the IRS. Consequently they will want you to use any assets available to pay down your debt first. If you cannot afford to make monthly payments but do have equity in your home or an investment or retirement account, they will want you to use the available funds to pay your liability before considering placing you in CNC.

The IRS will file a lien and will review your situation every year to make sure your financial situation hasn’t improved.

CNC Qualifications & Requirements:
*Negative monthly disposable income after necessary living expenses are paid
*Satisfy to the IRS that you do not or have liquidated all assets to full or partially pay the liability
*File all tax returns for the current year and at least the past 6 years
*Submit all requested IRS forms and financial documentation.

Offer In Compromise- the “settlement”

Occasionally, the IRS may consider settling the debt for less than the actual amount owed. This agreement, known as an Offer in Compromise, is extremely difficult to achieve and has strict guidelines that must be met in order to be considered. The IRS will only accept an Offer in Compromise if they conclude that the taxpayer will never be able to pay the total amount of the tax liability over the life of the collection statute or if they determine that collecting the tax would be unfair or inequitable.

The IRS will look at your reasonable collection potential (“RCP standard”) to determine whether or not they would have the ability to collect the total amount of the tax over the life of the statute. If they determine that your reasonable collection potential is less than the total amount of the liability, the IRS may settle your tax debt. Your reasonable collection potential can be calculated by multiplying your monthly disposable income by months remaining on the collection statute of limitations. An Offer in Compromise (a short-term cash offer) is calculated by multiplying your MDI by 48 months and adding that number to the amount of the net equity you have in your assets. If this amount is less than the liability, this becomes your “offer amount.”

Example:

A taxpayer who owes $100,000 to the IRS and has $500 in a checking account and $30,000 net equity in their home. Their MDI is $55 per month. The Offer Amount would be (note that the client will meet the prerequisite RCP standard):

$500 + $30,000 + ($55*48) = $33,140

This will involve a full financial investigation of income, assets, and expenses and can take anywhere from 6 months to two years to be reviewed by the IRS.

The IRS will also take your age, health, education and employment history into consideration. If you're 80 years old, for example, and are living on a fixed income and cannot afford payments to absolve the debt, the IRS may consider settling your debt as you do not have the means to pay the amount over the life of the collection statute. If you're 30 with a career ahead of you, it's presumable that in the coming years your financial situation may improve and your reasonable collection potential will increase. The IRS will generally not accept an Offer in Compromise if they believe you will have the ability to pay in the future.

OIC Qualifications & Requirements:
1. Satisfy to the IRS that you do not have equity in assets to pay the liability in full
2. Ensure that your Offer in Compromise meets the Reasonable Collection
Potential Standard
3. Establish that you have not dissolved or dissipated any assets that could have been used to pay the tax (the “dissolution period” starts when your tax is assessed or should be been assessed, whichever is earlier)
4. File current year’s tax return and all past due returns
5. File timely and pay all taxes for the next 5 years
6. Agree to give your tax refund for the current year to the IRS
7. Complete IRS form 656, 433-A, and submit to IRS will all attachments

An IRS Levy

noreply@blogger.com (Jim) — Fri, 15 May 2009 20:22:00 +0000

A levy is a legal seizure of your property to satisfy a tax debt. If you do not pay your taxes (or make arrangements to settle your debt), the IRS may seize and sell any type of real or personal property that you own or have an interest in. The IRS could levy your wages, you bank accounts, and in some extreme, rare cases could even seize property you own, such as your home.
The IRS generally only levies a taxpayer after other attempts to collect the tax have failed. If you are currently under levy, you have probably received several notices from the IRS informing you that you have a balance due and requesting payment. If you are not yet under levy, you should make an attempt to resolve your tax liability as soon as possible in order to prevent this type of collection activity from occurring.
The two most common types of levies are bank levies and wage levies.

A wage levy involves the IRS telling your employer to hold part of your pay and send it to them instead. The amount taken varies by case but, in most cases, leaves you with minimal income in order to meet your basic living expenses. When the IRS sends notice to your employer, they are required by law to comply. This type of levy will remain in place until an agreement is reached.

A bank levy, as the name suggests, is a seizure of money from an actual bank account. Like the wage levy, the IRS contacts your bank to inform them of the levy and the amount. This will freeze only the amount in you account at the time the bank receives the levy. Any funds deposited after your account has been levied will not be affected. After the bank receives the notice, the funds are frozen for 21 days before actually sent to the IRS by the bank. In this time the taxpayer can make arrangements to pay their tax debt, it may be possible to release the levy if this process is completed and appoved by the IRS before the 21 day period expires After the 21 days the money is gone and, generally, will not be returned.

The only effective way to avoid or release a levy is to get into an agreement with the IRS.