Posted by Dean Alexander on Wed, Aug 18, 2010
It is not a secret that the IRS can seize your property if you owe back taxes. But people always ask a question with regards to their primary residence. Can the IRS levy my house? The short answer is, yes. The question that must follow quickly is, but why?
Let us just speak of some details about seizures of your residence and then answer the “but why.” To begin with, the IRS cannot take your house if your tax debt is less than $5,000. Furthermore the IRS cannot summarily levy your house without a court order. You know that the IRS has such a massive power (they ought not) that they can issue a bank levy or wage garnishment; especially a bank levy without a court order. This is not the case with regards to your personal residence. They have to take permission from the court.
Now we come to the question of why would the IRS seize your personal residence? We should ask the question in a better way; why would anyone let his tax problem fester so long that the IRS seizes his or her property? If you have good tax representation all along this should not have happened. If you have a good CPA or a tax attorney, you should have been responding to the different circumstances and your tax settlement should have reflected your situation no matter what that situation was. This is true across the board except in criminal cases.
Let us now discuss what we are saying: we are saying that a tax problem should not have advanced so badly that it causes you to lose your house. Tax relief should have come way earlier. We would like to make a statement that we will defend as we progress in this blog. The statement is (please try to remember this all the time) you cannot have a tax problem without a tax solution. Every IRS problem has a solution. Here are the examples:
Mr. Destitute owns a home fully paid for but no cash to pay for his back taxes of $200,000. Do we have a solution? The answer is yes. The solution is possibly Currently-Not-Collectible.
Mr. Destitute number 2 owns a house. His mortgage equals the fair market value of the house (no equity) and no cash flow to mention to pay his tax debt of $200,000. There is a solution which may be either an Offer in Compromise or Currently Not Collectible.
Now Mr. or Mrs. Destitute are no longer Destitute and they are making good money every month and have a house paid for. Again we have a solution for this lady or the gentleman as well. It is an Installment Agreement.
So, as you see there is a solution for your tax problem if you have asset (house paid) for and no money such as Currently Not collectible. There is another solution for your IRS problem if you have no equity and no monthly income which may be an Offer in Compromise or Currently Not collectible. Finally if you have assets and you have money there is always the good old Installment Agreement.
The only exception that bars you from tax relief may be a criminal case where no Offer in compromise, no Currently Not collectible status or Installment Agreement is available to you.
Posted by Dean Alexander on Mon, Aug 16, 2010
First questions people face when they get married in one year is the filing status. Should we file single, head of household if one of the couple has been filing or even both, married filing jointly or married filing separately? The rule is what is your status at the end of the year? If at December 31 you are married then you can file married filing jointly.
Should people automatically file a joint return? Generally speaking you are better off filing a joint return. There may be other reasons however that may compel them to file differently. The most obvious reason that causes people to file married filing separately (some people erroneously file head of household or single even though they are married) in the existence of an IRS tax problem. One person may owe back taxes. To insulate the partner of the old tax debt they choose to file separately.
What if the couple decided to file jointly? Would they have defenses against the back taxes on the other spouse? There is the injured spouse defense. You basically say that the old tax debt is not yours because it happened before you met your spouse. The injured spouse provides tax relief to help you keep your refund or assets that you may have had before the marriage.
Other household keepings that you may want to remember is notify several authorities of your new status as per IRS Tips:
1. Change your name with SS administration file name change form SS-5. The web is www.socialsecurity.gov @ 800-829-3676
2. IRS address change: file form 8822 @ www.IRS.gov.
3. Notify your employer with the name change.
4. Verify your withholding based on your new combined income and make the withholdings changes with w-4 form
Posted by Dean Alexander on Tue, Aug 10, 2010
In trying to reach an IRS settlement, will they consider abatement of penalty? The answer is yes. Then the next question is:would they consider abatement of interest? The answer is generally no. There will be instances of abatement of interest as in the case of an erroneous IRS advice that caused some interest during a specific period or unnecessary delay that caused you to pay extra interest that otherwise you would not have to pay. Make a long story short, penalty can be abated, interest let us just say no.
When you seek tax relief from penalties here are some common reasons you may cite to request an abatement of penalty:
1) You have called the IRS and they told you something wrong that caused you to pay penalty. It would be nice if you have a name and badge number of an IRS employee. Remembering the date will go a long way in solving the tax problem when it relates to conversations with the IRS, especially if you don’t have a name and badge number. What you are hoping for is that they may verify your call through their records.
2) Relying on your bookkeeper's advice. You can obtain IRS tax relief to your tax problem if you relied on the wrong advice of your CPA, tax attorney or an enrolled agent. If the facts support your claim, that may go a long way for the IRS settlement that you are seeking.
3) There is tax relief from penalty if an act of nature caused you not to be able to file or comply with the law. This may be easier to prove because those acts are well publicized.
4) If you could not, for some reason, obtain your books of original entries or any documents that gives you an opportunity to seek IRS tax help, there may be a tax relief to settle the IRS problem with regards to penalty abatement.
5) You may be able to get IRS tax relief by abatement of penalty if you realized you were aware of your tax liability but it was financially very difficult to pay such liability. The tax help in this regard would be in getting tax relief from delinquency tax penalties.
6) Your prior history of compliance will make IRS tax help much easier. The IRS is willing to offer you tax relief from penalty if your prior history shows that you have always been in compliance.
7) If you were sick or physically impaired, the IRS may be willing to offer you tax relief by abatement of penalty. Tax settlement will be much easier if in any of these cases you can support your claim.
Posted by Dean Alexander on Fri, Aug 06, 2010
We always argue that not filing your taxes is bad and filing is good and smart, period. There are many benefits for filing all your unfiled returns and embarking on an action to resolve your IRS tax problem.
Any tax resolution or IRS tax settlement must start with filing your taxes. The IRS will not listen and will not play unless we file the back taxes. No Installment Agreement is granted. No offer in compromise or a reprieve in the Currently-Not- Collectible status will be considered unless your are in compliance. And what is compliance? It is filing all the unfiled taxes.
Many a times we are handling a wage garnishment case and about to close a deal with the IRS on the other line and lo and behold, here an unfiled tax year is found. The whole thing is dead in its track and the solution to your tax problem is delayed. Now we have to gather the data and prepare the unfiled returns while they continue to garnish and leave you with nothing to live on. So, is it a good idea to file? You bet.
Filing is good because it puts you on the good side of the IRS. You also may avoid a possible legal trouble. Many people have managed to recover refunds in the 11th hour that would have otherwise lost to the statute of limitation for refunds.
Also remember that if you owe back taxes to the IRS, the statute of limitation for collecting your IRS tax debt is ten years. Those ten years do not start unless you file and the tax is assessed. If you file you may benefit of the collection statute of limitation and get lucky and get away with the IRS tax debt. Another benefit is that tax audit will be, limited to three years if you up-to-date on filing. Filing is good.
Many people dread to file because they are afraid to unleash the wrath of the IRS for the tax debt that they may owe. If you have a competent CPA, tax attorney or enrolled agent, you may be surprised that your situation may be much better than you think. Seek a competent IRS tax help and start the tax relief process.
Do you have a story that supports this? Please share with us.
Posted by Dean Alexander on Wed, Aug 04, 2010
It may be advisable before you start submitting your data to an IRS Agent in an IRS audit to know taxpayer's rights:
1) You are entitled to IRS representation. You can have a CPA, a tax attorney or an IRS enrolled agent to represent you in your tax audit. If it is an individual tax audit, you do not have to face the IRS auditors and answer their questions. It is your right. Your CPA or representative can answer on your behalf after interviewing you. If you are a business entity, you can avoid the personal interview but the agent has the right to tour the place.
Touring your place of business is significant.
The IRS Auditor is sniffing and observing. He looks at your inventory; he sees how many people you have and so on. This observation can help him determine the level of activity and perhaps the level of income and the type of expenses he will expect to see in your financial statements. Obtaining tax help in this regard will be a good idea. A competent CPA is valuable IRS help in this regard.
It must be said that that IRS representation is not absolute right. If your tax attorney, CPA or enrolled agent unnecessarily delay dispensing of the information requested to conduct an IRS audit, the IRS has the right to contact you directly. The auditor must however, obtain his group manager’s approval before he takes this step.
2) IRS audit should not be more than once for the same tax year. They should not look at the books several times. They can handle the same year relating to an assessment of some tax problem such as assessment of additional tax deficiency, correcting mathematical errors or a claim of refund by the taxpayer. Taxpayer should not be audited on the same item more than once if the audited items did not result in any adjustment against taxpayer.
3) You also have the right to obtain taxpayer information about you in the IRS records under Freedom of Information Act. The IRS may have the right to withhold some information that it deems exempt from FOIA but generally you are entitled to see your records and identify any tax problems you may be facing or may be brewing. This right also applies to any IRS settlements relating to tax collections.
4) Taxpayer in a tax audit is entitled to an explanation of the tax audit process including tax audit appeal. Typically the agent will hand you a brochure explaining the taxpayer's rights and the tax audit process.
5) Finally, the taxpayer is entitled to what is called Taxpayer Assistance Order (TAO). This order is issued by the Taxpayer Advocate. Many times the issues that you cannot resolve through the normal channels can be resolved by the Taxpayer Advocate. The Advocate knows how to navigate the IRS and can solve the IRS tax problems faster and perhaps more equitably.
Posted by Dean Alexander on Mon, Aug 02, 2010
If nothing dramatic takes place in the case of the famous actor Wesley Snipes, he will probably be headed to jail. The tax problem of Snipes is not unfiled tax returns. Snipes did not file three years of tax returns. The estimated tax that he owed was close to $3 million. Although the amount of back taxes that Snipes owed is rather large, we contend that his tax problem may have had a better outcome if his CPA or tax attorney interfered early on to save him from himself.
We have clients who come to us with as many as 10 years of unfiled returns. Yet, the IRS (which is not always guaranteed) does not press criminal charges against them. Granted, it is harder to reach an IRS tax settlement if you have not filed, but still, it is done everyday.
What then made Snipes IRS tax problem different? First off, the IRS uses celebrities to publicize its massive powers to go after people who owe back taxes to the IRS. Snipes is a big boy with a large tax debt. That leads us to the next point which is the size of his tax debt. Although alone may have not caused the IRS to press criminal charges, it is still a rather a large tax debt that generates its own dynamics.
The most important factor that contributed to the exacerbation of that IRS problem, however was not the size of the tax debt, or the fact that he was a celebrity. Willy Nelson was as big a celebrity as Snipes and his tax debt was larger, possibly several times the tax debt owed by Snipes.
The crucial tax blunder that Snipes committed was his challenge of the IRS on the legality of taxation. He became a tax protestor. As such he was exposed to the full wrath of the IRS and was hit with all the collection arsons the IRS has culminating in his criminal indictment and then into sentencing him to three years in prison.
Snipes could just as easily have paid his tax with one check or even negotiated an Installment agreement (most likely he would not have qualified for an Offer in Compromise; certainly not the Currently Not Collectible status.) In my opinion what he did was foolish and misguided but on the other hand he is unwarrantedly harshly dealt with. I understand that he offered to pay his tax debt. Three years in prison for some one who wants to pay for his mistake?
Lesson learned is that never take on a battle you cannot win. Tax protestors in our experience always lose. Don’t compound your tax problem. Instead seek tax relief and file all your unfiled tax returns. Your CPA or tax attorney may come in handy if you engage them early on.
Posted by Dean Alexander on Fri, Jul 30, 2010
In our minds tax audits mean tax problems. Many ask why my return? How did I fall prey to a dreaded tax audit? There are several reasons that cause one's tax returns to be selected for an IRS audit. Let us just say that if we have done everything by the book and we have mitigated all the reasons for the tax audit that we will talk about, our return still may be selected through random selection.
Now let us talk about tax audit reasons other than random selection. Let us start by saying that the amount of income and tax liability may be a reason for an IRS audit. The larger the amounts on the tax return the better the chance for a tax audit. Why? It makes sense from the IRS point of view. The reasons go as follows: we will invest time and money for the IRS agent and we would like to recover our money. The higher the amounts reported (or not report or underreport) on your tax return the more handsome the chance they will recover money from you for their investment.
Let us speak about tax audit reasons that we would like to put them under the banner of self induced tax problems. It is a tax problem that you could have avoided but you either asked for it or mistakenly caused. Arithmetical mistakes on the tax return can cause your return to be selected for a tax audit. So check your math as they always say. Among other reasons are tax exemptions. Many taxpayers claim the wrong exemptions especially divorced taxpayers. Both parents sometimes claim same exemptions or more exemptions than they should.
For self employed people, the favorite items for an IRS audit are excessive car expenses relative to the income; meals and entertainment and the ever favorite office at home raises tax audit flags as well. Schedule C is one of the prominent schedules we see that cause tax problems to taxpayers.
The return can be selected for an IRS audit because you report high income on the schedule C. We recommend to our clients that if their income goes over $100,000 on schedule C, to consider incorporating. The opposite is true about income on schedule C. If you reported too little an amount and claim a lot of expenses, that may be a sure tax audit trigger. Some even deduct substantial expenses with $0 income on Schedule C. That may invoke the issue of hobby losses.
IRS audit can also be caused by taking deductions for expenses that do not suit the activities such as say liquor and beer purchase for an office supply store or say large office supplies expense by a truck driver.
One of the reasons that may cause you a problem and a tax audit is an amended return. This is true especially if you are claiming a large refund. They want to look at this return before they send you say $10,000 that you did not ask for to begin with. So be careful but always remember there is tax resolution to any problem. Next blog we will talk about the IRS audit and Taxpayer Rights
Posted by Dean Alexander on Wed, Jul 28, 2010
Payroll taxes is the worst tax debt you can owe to the IRS. Your tax problem is magnified by the fact that payroll taxes are not personal taxes or even corporate taxes that you or the corporation pay out of pocket to finance public policies. They are taxes taken from others and given to you to deliver to the IRS. I guess that is why they call them “trust fund.” For some reason those payroll taxes were not delivered. At the end of the year, your employees will file their personal income tax and send the W-2’s along with them and they will request the refund. The IRS will have to pay them their refund even if they never received the money from you. You get the picture. That will make them mad, of course. Did you intend to willfully choose to ignore the tax law and to incur tax debts to IRS? Most likely not. You just got caught in a cash flow problem threat which became an IRS tax problem. Does the IRS care that you did not mean to use the trust fund? Probably not.
The IRS will deal, most likely, harshly with you if that tax debt ever became excessive. They will hold you personally liable for the tax debt. Your company tax problem is not only a proprietorship or a corporate tax problem but also became an individual tax problem. The tax problem has mushroomed into tax problems.
The IRS will issue a bank levy your account as they will the corporate account. They will garnish your wages if you become an employee of someone else and still owe those back taxes. The bank levy and the wage garnishment are not the only manifestation of IRS anger. They may attach among other tax penalties hefty civil penalties. Is their a tax resolution to this tax problem? The answer is like anything in life, there is always a solution hanging out there; tax problem or no tax problem.
The proposed IRS settlement will be one of the traditional tax resolutions we have enumerated previously such as Installment agreement (IA), Offer in Compromise (OIC) or to be declared Currently Not collectible (CNC) by the IRS. After you obtain tax representation the question will be: which flavor would a CPA, a tax attorney or an enrolled agent propose as a tax relief? The tax relief will depend on your financial situation. The worse it is the better the tax resolution to your tax problem it will be.
The best tax settlement to your IRS debt probably will be a minimum amount of an Offer in Compromise, if you qualify. This will be an ideal tax help or tax relief for your IRS debt. The worst tax resolution is payment of the full amount of IRS debt which will include the penalty and interest. This solution is an Installment Agreement. Obviously, your CPA or your tax attorney will prefer to provide a better tax relief but they may have no choice because of your financial situation. You may have to accept this tax solution as the best tax help available at that time. Certainly such an IRS settlement can be renegotiated if your situation changes in the future.
Posted by Dean Alexander on Fri, Jul 23, 2010
We discussed in the last blog of 3 possible tax settlement options available to settle IRS debt to prevent or remove wage garnishment, or bank levy. Tax lien will be a subject of its own in subsequent blogs. We mentioned three alternatives, installment agreement, offer in compromise and being declared currently-not collectible by the IRS.
We saw that installment agreement meant that we will pay all IRS taxes including interest and penalty but instead of a lump sum settlement, we will do it over certain period. We also said that we the tax relief that we will get for our back taxes will be shaped by our financial situation; assets and liabilities on one hand and income and expenses on the other.
Your CPA or tax lawyer has to calculate both the amount of income in excess of your expenses and the net worth to decide the best tax help for your tax problem he or she should recommend. Generally, if you have assets to pay in full your total tax debt or if your monthly income is more than your monthly expenses in such a way that it is enough to pay your tax debt over the statute of limitation, you are not eligible for an offer in compromise but you may be eligible for an installment agreement and possibly the currently not collectible status.
In the last blog we gave an example of how would an installment agreement be the only option to pay your back taxes and solve your tax problem. Now it is time to talk about offer in compromise as an IRS tax relief solution to your tax debt. Let us assume that your tax debt is $10,000 and you have no assets whatsoever. Let us assume that your monthly income is $1,000 and your monthly expenses are $1,100. In this case you have no assets and no residual income to payoff your tax debt. You are a perfect candidate for offer in compromise or currently not collectible.
The question then, should we try to declare you as currently not collectible or seek tax relief in an offer in compromise? We will discuss the difference between both alternatives as a way to resolve your IRS problems.
Posted by Dean Alexander on Wed, Jul 21, 2010
If you have a tax problem or tax problems such as a bank levy, or wage garnishment and you are seeking tax relief for your tax debt, the tax help a CPA, an IRS Tax Attorney or an enrolled agent will offer you has to be one of three:
a. Installment Agreement
b. Offer In Compromise
c. Currently not Collectible
IRS Installment Agreement:
Basically, an installment agreement means that your tax debt settlement offered you no reprieve on the amount you owe. You will pay the full amount of the IRS debt. The only tax debt relief you have is making periodic payments of the full tax debt amount. The tax resolution for this tax debt will not stop the accrual of interest and penalty.
The question is, why would a rational human being choose an Installment Agreement over, say an Offer in Compromise or Currently-Not-Collectible status? The short answer is: typically your financial situation dictates the agreement that will ultimately shape the tax resolution of your case.
Generally speaking, if you have a lot of net assets and your income is much more than your expenses, your chance of reducing IRS debt is lower. Net assets are defined as your assets minus your liabilities. If you own a house that is worth $120,000 and your loan is $80,000, your net asset in this case is $40,000. Any IRS tax resolution must account for this fact. For example, if your tax debt is $10,000, the IRS will insist that you pay the full tax debt because they can collect that much from you. The only tax relief in this case is to schedule the payments over several years and you must understand that in your search for professional tax help.
The other factor when you seek tax debt settlement is the income and expenses as we said above. Let us say that you have no home and you own nothing in this life and your tax debt is $10,000 as in the case above. Let us assume further that your monthly income is $5,000 and your expenses according to IRS national and local standards are $4,500. If this is the case, the IRS will not reduce your tax debt and the only tax resolution for your tax problem is an Installment Agreement.
If you have a wage garnishment or bank levy, the IRS will not embark on levy release or removals of your wage garnishment unless you strike some sort of a tax debt settlement be it an Installment Agreement, Offer In Compromise or be declared as Currently Not Collectible. As a side note you must bear in mind that your CPA or your tax attorney must prepare all your unfiled taxes.
Discussion of the rest of tax resolution options will be continued on the next blog.