Friday, June 26, 2009

IRS Help

Do you have a tax problem with the IRS and need help? If so then I would recommend calling a tax professional. In my experience in dealing with IRS tax matters most taxpayers who have problems with the IRS seldom know what the issue really is. Furthermore it is very difficult for the taxpayer to retrieve the necessary information from the IRS in order to determine what their problem is and how to fix it.

A tax professional will usually take a taxpayer through a few steps that are required to resolve a taxpayers issue with the IRS. Usually the most complex type of personal income tax problem is when a taxpayer has unfiled tax returns and owes the IRS money. A tax professional can be very helpful here. Step 1 is to retrieve and analyze the taxpayer’s masterfile and income transcripts. Step 2 is to file the unfiled returns using the income information and other relevant information from the taxpayer’s masterfile and income transcripts. Step 3 occurs after the returns have been filed and the total liability is known.

This is the resolution phase. This is when the tax professional begins the process of negotiating directly with the IRS to get the final tax liability resolved. These steps may sound simple whereas in reality they can be quite complex. If you need help and are considering going it alone think again! Taking on the IRS without any knowledge of how the organization operates can be very costly! You would be wise to, at the very least, consult with a tax professional.

IRS Certified Letters

One of the most common reasons taxpayers call my firm is in response to certified letters from the IRS. Whenever a taxpayer receives mail of this nature it is usually not a good thing. The IRS is attempting to send a taxpayer a serious communication and these letters usually indicate that the IRS is attempting to collect a debt. This mail should be opened immediately, read and responded to as quickly as possible.

If the taxpayer is in collections with the IRS they will receive two certified letters spaced about 30 days apart. The first letter is an initial notice. The second is a final notice. The bottom line is the IRS means serious business and they will take action. The IRS is a priority creditor and needs to be given the full attention of the taxpayer. If you find yourself in this position call someone to represent you before the IRS and do it quick because time is NOT on your side.

Friday, June 19, 2009

IRS Penalty Abatement

This is what everyone wants when they incur a penalty from the IRS. Sometimes the IRS will grant it, sometimes they won’t. One of the more common penalties is the failure to file penalty. The IRS will assess this penalty against a taxpayer if the taxpayer has not filed their return by the due date or if the taxpayer as not filed an extension by the due date. Getting penalties abated is no easy task. The IRS doesn’t simply remove penalties by someone asking them kindly or by using highly technical language. The IRS will consider penalty abatement only if there is a rock solid reason why they should not charge the penalty.

This is the first step in having a failure to file penalty abated. There has to be some reason the taxpayer did not file their return by the due date. Feeling sick, working too many hours, did not understand the tax changes for the current year and so forth and so on are not reasons the IRS would consider in abating penalties. Generally the event that prevented a taxpayer from filing must be catastrophic in nature such as a severe medical illness, an act of God such as a hurricane, earthquake, fire or landslide or something of the sort. Whatever the event is it must be thoroughly documented and submitted to the IRS. Then and only then will the IRS consider removing the failure to file penalty.

In a prior blog I mentioned the devastating effect of allowing penalties to accumulate. This is something not to be taken lightly. This has the power to cause tremendous financial problems for taxpayers. If you have questions regarding penalty abatement you should consult with a tax professional who can advise you properly.

I Forgot To File My Taxes

This is going to sound like an advertisement for Ripley’s Believe It Or Not but it’s actually a real thing! Sometimes taxpayers forget to file their taxes. If this has happened to you then the best thing you can do is to correct the problem as soon as feasibly possible to prevent the build up of penalties and interest. A tax professional can help greatly with this.

A problem for some people is that they do not have their W-2s or 1099s for the unfiled years. This can cause problems if not addressed correctly due to the fact that when tax returns are filed with the IRS they go through a “matching” process where they match the income listed on the tax return to the income contained in the IRS records. Where I work, our approach is to retrieve this information directly from the IRS and use their income information to prepare the returns. This ensures accuracy.
The benefit to working with a tax professional to resolve an outstanding issue of this sort is that first of all it will get you compliant with the IRS which means it eliminates the chance of you going to jail! Currently there are quite a few taxpayers who have not filed their returns. If you are one of them I would like to highly encourage you to take action and get this situation resolved immediately! You will not regret it!

Friday, June 12, 2009

It’s Expired - IRS Collection Statutes

Cottage cheese has it. Coke products have it. Lunch meats in your local grocery store have it. And your IRS tax debt has it! Can you guess what I’m talking about? I’m talking about expiration dates! Now the expiration dates on an IRS tax debt are not quite as short as the expiration dates on perishables items you will find in a grocery store. They last a little bit longer. Try 10 years for example! Yes, 10 years!

When the IRS records in their computer system a tax debt that a taxpayer owes the IRS generally has 10 years to collect the liability provided nothing has occurred to extend the collection statute. This is very important information to know! I will provide one example of how information like this can be very helpful to a taxpayer. Our firm had a client who owed a large sum of money to the IRS from where the IRS filed a return for the taxpayer. This is known as an SFR, the industry terminology for “substitute for return.” This is when the IRS takes the income that has been reported to them that a taxpayer has earned and they file a return as a substitute for the taxpayer’s original return.

Often times and SFR does not take into account all of the deductions a taxpayer may have. If the taxpayer had substantial write-offs or deductions then it may be wise to file a tax return “over” the SFR the IRS filed for the taxpayer in order to lower the liability. Taxpayers need to exercise caution when considering such an action and should consider the expiration date of the SFR. If the SFR will be expiring soon then the taxpayer may not want to file over the SFR because by so doing the newly filed return will “reset” the clock and give the IRS a full 10 years to collect on the liability established by the newly filed return.

I heard of the client who took independent action and filed over the old return and lowered their liability but could have waited just a few short months to when the liability would have been no longer collectible. The moral of this story is KNOW YOUR COLLECTION EXPIRATION DATES! Our firm offers a service to taxpayers to help them find out what their collection expiration dates are. When in doubt, check it out!

IRS Secrets

This may be the single most important blog you will ever read if you have issues with the IRS. Before you read this blog I want to provide the reader with four definitions Merriam-Webster gives for the word “secret.” Merriam-Webster writes that a secret is something that is “kept from knowledge or view” “working with hidden aims or methods” “not acknowledged” and “designed to elude observation or detection.” As you read this blog I want you to keep these definitions in mind.

The IRS maintains a file on each and every taxpayer. This file is “kept from knowledge or view” due to the fact that the IRS is highly reluctant to grant individual taxpayers access to their IRS file. Information contained in this “secret file” can be invaluable to anyone who has issues with the IRS. The information contained in the file can be used to help the taxpayer understand where they are in the collection process, how much they owe, how penalties have accrued, when the liabilities expire and much more.

The firm I work for has very recently introduced a revolutionary service to taxpayers which will allow taxpayers to obtain full information from their “secret” IRS file! Any reader desiring to know the contents of their IRS “secret file” should contact me at the toll-free number listed on my blog. One last note…obtaining a copy of the file will not bring attention to the one requesting the file. Don’t wait! Find out today!

Friday, May 29, 2009

IRS Penalties – A Financial Nightmare

IRS penalties can be a nightmare! Most people probably do not understand just how devastating penalties imposed by the IRS can be. For individuals the IRS applies two types of penalties. One is the failure to file penalty and the other is the failure to pay penalty. The failure to file penalty is 5% of the balance due as of April 15th and continues for 4½ months. The failure to pay penalty is approximately ½ of 1% per month and is applied to any unpaid balance until the total interest charge reached 25%. The failure to pay penalty can not exceed 25%. Now let’s see how this works out.

Suppose a taxpayer did not file a tax return for 2002, 2003 and 2004. Let’s further assume that the taxpayer owed approximately $5,000 for each of those years. The IRS will apply 5% per month for approximately 4½ months to each balance. So now each balance is approximately $6,125. Next they will apply approximately ½ of 1% per month to each balance. Seeing as how the returns are fairly old the total interest rate applied will be 25%. So now each balance would be $7,375. So this taxpayer would owe $22,125 instead of $15,000 that was originally owed. This taxpayer needs help and needs help quickly! This does not take into consideration the fact that interest is continuing to accumulate. A tax professional can offer good advice on how to handle this.

IRS – Removal of Penalties

The law permits the IRS to remove or reduce the penalties applied to a taxpayer's account if the taxpayer can submit a written explanation with an acceptable reason as to why the IRS should remove or reduce the penalties. Once submitted the IRS will review the documentation and will contact the taxpayer to notify them of their decision. It is important to note that the law does not permit the IRS to remove or reduce penalties. There may be instances where the IRS will require the taxpayer to pay the tax in full before removing or reducing the penalties.

IRS notice 746 contains a wealth of information regarding your notice, penalties and interest. The reduction or removal of penalties can be a difficult task to get the IRS to agree to due to the way the IRS rules are written. First the taxpayer has to submit to an IRS interview called the Penalty Abatement Reasonable Cause interview. The questions are detailed and they are tough, but if enough documentation can be provided to convince the IRS drop the penalties then it is well worth it. A great place to start would be with Notice 746 which gives an excellent explanation of things. This can help a taxpayer decide whether or not they need to involve the services of a tax professional to help with penalties (but not interest).

Friday, May 22, 2009

Underreporting Income

I wonder how many people know what happens when they under report their income to the IRS. When this happens it can cause a rather serious situation to arise. When a taxpayer sends a tax return to the IRS the first thing the IRS does is perform a computerized “tax match.” This is an automated system that matches the income reported on a tax return to the report the IRS maintains on each and every taxpayer of what has been reported that the taxpayer has earned.

If the income does not match the system will flag the return for further review. If the taxpayer has overstated their income then the IRS will issue a refund. If the income has been under reported then the taxpayer will receive a notice called a CP 2000. This requires the taxpayer to respond accordingly. There are many things that can cause a taxpayer to under report their income mistakenly, usually a simple oversight.
Then again there are other times that the under reporting is not due to an oversight but just blatant negligence. The IRS takes under reporting serious. If you have received a CP 2000 you have got some explaining to do. You may need the assistance of a tax professional to keep you out of trouble.

IRS Tax Problems

IRS tax problems can happen at any time throughout the year. The problems can stem from many different issues such as under withholding, under reporting of income or sometimes more serious violations such as unfiled returns. Any time you have a problem with the IRS it is a serious and most always requires attention.
The best advise to give when dealing with the IRS over a tax related problem would be to communicate with them! A lack of communication with the IRS is almost always guaranteed to get them a little hot under the collar and could jeopardize the final outcome of things. Some people are comfortable with speaking with the IRS and others are not. If you fall into the latter category and you have a tax problem I would encourage you to see professional tax advice. Don’t let silence be your downfall!

Friday, May 15, 2009

IRS Certified Mail – Your Last Chance

In my previous blog I compared certified mail from the IRS to a rattlesnake getting ready to bite. The IRS is getting ready to “bite” you when they send you a CP 504 letter. If you receive another piece of certified mail with “L1058” written on it then you know this is your last chance. If you do not respond to this letter you will get bit! Lions, snakes, dogs or anything with fangs are usually considered dangerous because of the damage a bite can do. The IRS is no different.

Their “bite” will not draw blood nor force you to seek immediate medical attention, but it will cause you equivalent pain financially. If this L1058 letter is not addressed immediately and effectively the financial effects can be dramatic. The IRS can attack all of the taxpayer’s sources of income, bank accounts as well as file a notice of federal tax lien against the taxpayer’s social security number thus laying claim to all property the taxpayer owns currently and any property the taxpayer may own in the future, not to mention the devastating effect the tax lien will have on the taxpayer’s credit score and subsequent ability to borrow money.

After income has been reduced and the ability borrow cut off this usually produces excruciating financial pain and can very difficult to correct. The best bet is to address the situation quickly before it becomes a problem. Lions, snakes, dogs or anything with fangs are best kept at a safe distance and preferably in a cage or somewhere else that would prevent a bite. Responding quickly to an L1058 letter from the IRS is the best way to avoid getting bitten by the razor sharp fangs of the IRS. Certified mail of this nature is best handled by a tax professional. Protect yourself! If you have received a letter like this call someone now and do not delay!

IRS Certified Mail - It's Serious!

Certified mail from the Internal Revenue Service is serious and should be treated the same way you would treat a rattlesnake that’s about ready to strike. The IRS is issuing the taxpayer a warning that they are going to strike. Coming from the IRS the threat is real and it must be addressed quickly. Usually the first certified letter a taxpayer will receive from the IRS will be a CP 504. This is an initial notice the IRS will send out notifying a taxpayer they are intending to take action to collect on an outstanding tax account.

In many instances when a taxpayer owes a tax debt and it has progressed to the point where the IRS is sending this type of notification the taxpayer usually does not have the funds necessary to pay the tax debt in full. It is for this very reason that the taxpayer must take immediate action on the letter and get help because the IRS is getting ready to strike. The first place the IRS strikes is the taxpayer’s rear end, specifically their wallet. The IRS will issue a wage levy against the taxpayer’s paycheck taking up to 85% of the taxpayer’s salary!

Most taxpayers, not all, financial affairs are much like dominos delicately arranged on a table. If one domino falls it could cause some of the others to fall. When the IRS issues a wage levy it is just like knocking over the very first domino in a string of dominos causing all the others to fall, one right after the other. When a taxpayer’s income is drastically reduced it usually causes other financial problems to occur immediately. If you have received a CP 504 take action! Get help immediately! A tax professional can be an invaluable resource when dealing with this type of situation.

Friday, May 8, 2009

Mortgage Debt Forgiveness

Under the current tax law a taxpayer can exclude from gross income any discharge of qualified principal residence indebtedness (see page 104 of IRS Publication 17). The exclusion applies to discharges after 2006 and before 2013. One stipulation is that the basis of the principal residence (the main home) must be reduced (but not below zero) by the amount excluded from gross income.

This represents a significant degree of help for someone who has lost their home due to the recent and ongoing economic turmoil in our country. Prior to the introduction of this law a lender who discharged a mortgage debt would send the homeowner a 1099-C, Cancellation of Debt form, in the amount of debt charged off. The taxpayer would then have to claim this as income and would have to pay taxes on it!

The law is very tricky however. There are many instances where a discharged mortgage debt can be charged to the homeowner as income, such as a second home, investment property, etc. Therefore if confronted with a 1099-C, Cancellation of Debt notice it would be wise to have this reviewed by a tax professional.

Reporting Income

When preparing income tax returns, reporting income is very important. One reason is that the IRS will perform a “tax match” once they receive your return. The IRS will “match” the income listed on the return to the income they have on file that has been reported that you have earned.

Reporting income falls under the category of Accounting Methods and can be read in detail in IRS Publication 17. There are two methods of accounting, cash and accrual. Constructive receipt, garnisheed wages, debts paid for you, payment to a third party payment to an agent and checks received or available to you are cash methods of accounting. Income paid in advance would fall under the accrual method.

Knowing and understanding what constitutes “income” for reporting purposes is very important. Mistakes in this areas can be costly. If, when the IRS performs their tax match, they determine a taxpayer has underreported their income this triggers an investigation and the IRS will send the taxpayer a CP 2000, underreporting of income letter. If a taxpayer is sent this letter it would be wise to get a tax professional involved. The tax return must be amended and re-submitted to the IRS and then managed thru the process to avoid having the return rejected.

Friday, May 1, 2009

Why Do I Owe Taxes To The IRS?

At times I have had to be the bearer of bad news. I have had situations where a spouse will call and tell me they have received notification from the IRS stating they owe a large sum of money and they ask the question, “Why do I owe taxes to the IRS?” The question this because they are being charged with a tax liability for years they didn’t even work.

Often times this is a situation where one spouse has worked for several years and has not filed income tax returns for several of those years. The other spouse, the one calling me, has not worked at all and has somehow been kept in the dark about their tax filings. What happens usually happens is that something prompts them to file their returns. Once the returns are filed, and here’s the important part, Married Filing Jointly, the total liability is automatically assigned to each spouse equally.

Unfortunately this tax filing sleight of hand occurs just before the unscrupulous files for divorce leaving the other spouse equally liable. Once the returns are filed and the liability is assessed the trap door slams shut and the collection process begins. This is one way a taxpayer may wind up owing taxes and not fully understand why they owe. Taxpayers in this situation can benefit from professional tax resolution.

Self Employment Taxes

Seldom a week goes by where I don’t speak with someone who is self employed, is great at doing what they do, but have a tax problem that is putting the business in serious jeopardy. As the conversation unfolds it becomes clear that the lack of knowledge of how to pay taxes as a self employed person as well as a proper record keeping system lies at the root of the problem.

In its most simplified for the self employed person is the only person working for the business. In the more complicated situations the self employed person has or did have employees who were paid in cash and were not issued 1099s. Sometimes the tax liability comes about as a matter of improper withholding. Other situations are due to simply not filing the tax returns.

In either event as time rolls on the IRS eventually catches up with them and the day of reckoning arrives like a very unwelcome guest that is here to stay and is not going away. Once this happens the self employed person is forced to deal with the issue head on. Sometimes things can be worked out with the IRS and the business can continue operations. There are also times when this is not possible and the business is forced to close. Every case is unique. My strong recommendation to anyone facing such a situation would be to get a professional involved. This can and usually does make a world of difference for the better.

Friday, April 17, 2009

Currently Non Collectible

In the 1819 Supreme Court case of McCullock versus Maryland, the Court's ruling upheld the constitutionality of the creation of the Bank of the United States and denied to the states the power to tax such an institution because, as Justice John Marshall put it, "the power to tax is the power to destroy." The United States congress grants the IRS the power to tax. Therefore the IRS has considerable power to tax and subsequently the considerable power to destroy.

There is, however, a provision in the tax code to help those who are unable to pay the IRS. The program is called Currently Non Collectible or CNC. When a taxpayer owes the IRS and simply cannot pay then CNC is a definite option that can save the taxpayer from getting “destroyed.” As a tax professional I have witnessed situations where the IRS is levying individuals whose only source of income is social security. After conducting a financial analysis of the taxpayer’s situation it becomes blatantly obvious that the taxpayer simply does not have the ability to pay.

This is a perfect case for CNC. Many times hardworking, honest taxpayers, loyal to their country, struggle financially unnecessarily because they don’t realize they don’t have to pay what the IRS is demanding. This program does not make the tax debt go away. It simply frees the taxpayer from the destructive power of taxation. If you or anyone you know is struggling financially with a tax burden I would strongly suggest calling a tax professional to see if CNC is an option.

IRS Tax Penalties

Any way you dice it a penalty is not a good thing. Webster’s dictionary defines a penalty as a “disadvantage, loss, or hardship due to some action.” This definition is completely accurate when it comes to IRS tax penalties. The IRS can and will impose two types of penalties on taxpayers all depending on the taxpayer’s situation.

If a taxpayer files so much as one day after April 15th without filing an extension to file the IRS will penalize the taxpayer 5% of the amount of tax owed per month for 4 ½ months if the tax is not paid within that time period. That adds up to 22.5%! This is the dreaded Failure To File penalty.

If a taxpayer owes taxes and does not pay what they owe by April 15th the IRS will charge ½ of 1% of the amount of the taxes owed per month. This amount will increase to a full 1% if the taxpayer is in collections, but will be reduced to ¼ of 1% if the taxpayer gets into an installment agreement with the IRS. This penalty is known as the Failure To Pay penalty.

The penalties on back taxes can be devastating and needs to be addressed as quickly as possible to prevent the taxpayer from suffering loss or causing some other type of financial hardship. The key is to take action. Call a tax professional immediately and stop the pain!

Friday, April 10, 2009

IRS Withholding Allowances

From time to time an interesting argument will surface regarding IRS withholding allowances. Some taxpayers like to get money back after filing their federal income tax returns. Others like to manipulate their withholding through their employer in an attempt to “break even” come tax time. Sometimes employees get this equation so out of balance they wind up under-withholding for years and over time end up owing the IRS a large sum of money.

In either case the most important thing for the taxpayer to understand is that the IRS debt must be paid. To get a very good understanding of how this works a taxpayer would do well to read and understand the Employee’s Withholding Allowance Certificate policy on withholding. As a tax professional I see this as one area that gets taxpayers into big trouble. The trouble starts when a taxpayer is told by a co-worker or someone else that they can increase their take home pay by reducing the amount of taxes withheld. This sets the stage for the classic problem of under withholding that ultimately gets the taxpayer in big trouble with the IRS.

Time after time I have taxpayers calling me about their tax problem only to discover that their problem stems from under withholding. With a good understanding of how this program works hopefully taxpayers can avoid getting into trouble. If you are in trouble and owe the IRS due to under withholding then please call a tax professional and get the professional care available to you.

Can The IRS Levy My Social Security Benefits?

For whatever reason many taxpayers are asking the question, “Can the IRS levy my Social Security benefits?” At the risk of sounding like an attorney the answer to the question is this, it depends. Your Social Security benefit can be levied depending on how your Social Security benefit is defined as per Title II of the Social Security Act.

Social Security benefits fall under the Federal Payment Levy Program (FPLP) which subjects certain recipients of Social Security benefits to a 15-percent levy to pay a delinquent tax debt. This rule is not to be confused with the 1996 Debt Collection Improvement Act which protects the first $750 of monthly Social Security benefits from being garnished for non-tax debts.

If you receive Social Security benefits and have received a Notice of Intent to Levy it is very important that you take immediate action. In the vast majority of instances a taxpayer receiving Social Security benefits can be protected from a levy. The key is to act quickly. Call a tax professional!

Friday, April 3, 2009

Unfiled Tax Returns

Do you have unfiled tax returns? If so then you need to get them filed for several reasons. One of the biggest reasons is because it is a criminal offense to not file. One of the other reasons is that the IRS may file a tax return for you if you don’t file. On this blog you will find out what will happen if the IRS files a return for you.

So you have not filed a return in several years and then all of a sudden you get a bill in the mail from the IRS for $47,835.14! After you recover from passing out you scramble to find out what has happened and what to do. Here’s what has happened. The IRS has a record of all the income you have received for each year you have received it. They have now taken this income from a few, not all, but a few years and listed it on an income tax return. The IRS has given you the minimum deductions, zero exemptions and has filed you as single which translates to the highest amount of tax.

Then they add penalties and interest and calculate the total amount due based on when the tax return was due then they send you a bill. If the bill is not paid then they seek to collect. If no action is taken on your behalf they go after your income by sending a letter to your employer and to your bank demanding money. At this point you are in very serious trouble.

But wait, there is help! If this happens the best thing to do is file all returns immediately! Get the returns filed the way they should have been filed initially. This should cause the amount you owe to go down. Once all of your returns are filed you’re good to go! If you owe money to the IRS after filing the returns then you need to work out a plan of resolution. A tax professional can help you with this. Whatever you do take action and don’t get behind the eight ball! Be proactive!

Tax Negotiator

Samuel L Jackson and Kevin Spacey both starred in the 1998 movie The Negotiator. Samuel L Jackson plays the part of a highly skilled Chicago police hostage negotiator who is framed for murder. To clear his name he takes a group of people hostage in an attempt to clear his name. With the stakes high, the drama builds to a point where Samuel L Jackson tells the hostage negotiator who is trying to negotiate with Samuel L Jackson that Kevin Spacey is the only person he will deal with. This is because Kevin Spacey himself is a world-class hostage negotiator who knows all the tricks of the trade. After lots more high drama, the problem is eventually solved and Samuel L Jackson is cleared of all wrongdoing. It is a movie well worth viewing.

With Hollywood the outcome can be whatever the film writer wants it to be, but this is not always the case in real life. The point was made and well taken in the movie that it pays big dividends to have a skilled negotiator who knows all the tricks when the stakes are high. In my roll as a tax consultant I definitely find this to be true when it comes to negotiating with the IRS. In the movie, which we all know is make believe, Samuel L Jackson was an intelligent, skilled negotiator yet he needed another negotiator to get him out of the jam he was in.

In real life when it comes to negotiating with the IRS it pays big rewards to have a skilled negotiator looking out for you if your are in a situation where the stakes are high and the wrong moves could negatively impact your life both immediately and futuristically. There are many different ways an IRS debt can be negotiated that most tax payers have no idea exists nor how to negotiate them therefore they come out on the very short end of the stick. The best wisdom in situations like these would be to consult with a true tax professional that can prevent you from suffering a greater loss by attempting to negotiate directly with the IRS.

Friday, March 27, 2009

Can I Get My IRS Penalties Abated?

As a professional tax resolution specialist a very frequent question I hear is, “Can I get my IRS penalties abated?” And the answer is always the same which is, “It depends.” It depends on the individual circumstances of each person who owes taxes and also owes penalties. In order for the IRS to remove penalties they have to have a very good reason. The IRS applies penalties to give taxpayers an incentive to pay their taxes on time.

There are instances where taxpayers truly have very good reasons to have their penalties abated. The key to getting the penalties is to 1) know what the rules are regarding penalty abatement, 2) properly documenting the reasons that lead to the penalties and finally 3) presenting your case to the IRS and requesting they abate (remove) the penalties. Often times a tax professional is the most qualified person to handle this procedure and a taxpayer would do well to consider this option.

The qualifications for penalty abatement are stringent and can be hard to document but can be well worth the effort. Recently the IRS implemented a first time penalty abatement program to help taxpayers who have gotten into trouble with the IRS for the first time. Again a tax professional can be very helpful in this area.

I Have A Federal Tax Lien

You have just come home from a hard day of work and you see that the mailman has left a yellow slip of paper in your mailbox. You look at it and notice the IRS is trying to notify you about something. You go to your local post office and pick up a certified letter from the IRS and open it. As you read thru the letter you discover to your horror that the IRS has filed a federal tax lien against you! What do you do?

If you’re like most people you feel a shock wave of fear and confusion shoot thru your body and your anxiety level goes way up and all for good reason because this is a very serious matter. A federal tax lien will have a serious affect on your credit as well as your ability to obtain any type of loan or other financing. It may hinder your ability to get hired. You need this corrected and you need it corrected now! What should you do?

Perhaps the best course of action would be to contact a professional tax resolution firm and interview them as to what can be done to resolve a federal tax lien. If you have received a federal tax lien then the chances are very good that there’s more going on with your IRS file than meets the eye. In most cases what is needed is a thorough review of your IRS file to find out what’s going on and why. The possibilities are many and it does require the services of a tax professional.

In the vast majority of instances a federal tax lien can be removed only when the tax liability is paid in full. The most important thing however is to obtain professional help due to the fact that if the IRS has filed a federal tax lien against you then the possibility exists that you are subject to further IRS collection proceedings which could include the IRS levying your bank accounts and/or your wages. If you have a federal tax lien take action immediately.

Friday, March 20, 2009

How Far Back Can The IRS Collect?

You did not file a tax return many years ago and you’re wondering how far back the IRS can go to collect. If you have filed all of your returns then usually the IRS will only look back 7 years. If you do not file a return then the IRS can go as far back as when the return was initially due. The important issue here is to make sure you file your returns. It is the IRS non-filer who has the most to fear.

Whenever a taxpayer has outstanding returns (unfiled returns) there is no limit to when the IRS can come after you. What will happen is that the IRS will file a few returns for the taxpayer, add interest and penalties and will then bill the taxpayer for the full amount. This will get the taxpayer’s attention. If this happens and you feel you are getting squeezed by the IRS your best bet is to call for professional tax help. This can save you a lot of money and heartache.

Audited! How Long Does The IRS Have?

Are you concerned about getting audited by the IRS? From time to time people ask me, “How long does the IRS have to audit a taxpayer?” Generally the rule is that the IRS can audit a taxpayer going back 3 years and that’s it. If the IRS determines that a taxpayer has underreported their income by more than 25% for a given year then they can go back 6 years.

Getting audited by the IRS is a serious proposition and should not be taken lightly. The IRS conducts two types of audits, a correspondent audit and a field audit. A corresponded audit is when the IRS corresponds with the taxpayer via the US mail. A field audit is when someone with the IRS comes and visits with the taxpayer in person.

If you are notified you are going to be audited you need to get professional representation to make sure the auditor does not have free reign to ask whatever they want to. Audits need to be guided and managed. Failure to adhere to this advice is an invitation to trouble. Don’t take a chance. Call a true tax professional.

Wednesday, March 11, 2009

IRS Certified Mail - CP 504

Have you received certified mail from the IRS and are wondering what it’s for? The chances are very good they are sending you an IRS Notice CP 504 stating the following:

We intend to levy on certain assets. Please respond NOW.
Our records indicate that you haven't paid the amount you owe. The law requires that you pay your tax at the time you file your return. This is your notice, as required by Internal Revenue Code Section 6331(d), of our intent to levy (take) any state tax refunds that you may be entitled to if we don't receive your payment in full. In addition, we will begin to search for other assets we may levy. We can also file a Notice of Federal Tax Lien, if we haven't already done so. To prevent collection action, please pay the current balance now. If you've already paid, can't pay, or have arranged for an installment agreement, it is important that you call us immediately at the telephone number show below.

Taxpayers want to know the answers to the following questions once they receive a CP 504:
What is the notice telling me?
What do I have to do?
How much time do I have?
What happens if I don’t pay?
Who should I contact?
What if I don’t agree or have already taken corrective action?
Click here to find answers to these questions.

The most important thing for the taxpayer to do at this point is to take action to address this concern immediately! A notification from the IRS stating their intention to “take” your financial assets is a serious concern! Tax payers should speak with a tax professional who specializes in CP 504 matters. A professional tax resolution specialist should be able to explain the three methods of resolving a CP 504 issue and which plan of resolution the taxpayer would best qualify for.

Friday, March 6, 2009

IRS Non-Filers – Part II

So you haven’t filed your tax returns in a good number of years and you need to get them filed. You are concerned about not having all of the income records from prior years and you can’t remember some of the places you have worked. Worse yet some of the places you have worked are no longer in business. What do you do? The answer is to call a tax professional. A tax professional can help you greatly in this area!

There are two very good reasons to hire a tax professional. First, the tax professional will contact the IRS on your behalf and obtain your Wage & Income Transcript for each year you need to file. This is the report that the IRS maintains on every taxpayer that keeps a running total of all income that has been reported to the IRS that you have earned. By doing this the tax professional will be able to list your income correctly on your tax returns. This will help you avoid a serious problem, which leads to the second reason you should hire a tax professional.

Many taxpayers have multiple sources of income and they fail to report all of it for one reason or another. This shows up later when the IRS performs a “tax match.” This is the process whereby the IRS matches the income you report to the record they have. If the taxpayer has underreported their income then this will cause the taxpayer to owe more money plus penalties and interest on the amount owed. There are more reasons to hire a tax professional. Call a tax professional today and they will help save you from future problems with the IRS!

IRS Non-Filers – Part I

Are you a “non-filer”? Were you a regular filer at some point in time and then, for whatever reason, drop out of the IRS system and have been wondering how to get back in “the system”? If so then it may not be a difficult as you think. As a tax consultant I encounter people with this concern quite frequently. For whatever reason they simply dropped out of the system and don’t know how to get back in.
First of all if a taxpayer has filed for the last 6 years plus the current year the IRS considers the taxpayer to be compliant. So all that is needed is to get these years filed and you are “back in the system!” Once these returns have been filed the IRS will consider you compliant and you simply move forward with filing all future returns on time and you should not have any more problems or concerns with the IRS. If you are not compliant I urge you to get compliant as soon as possible. Failure to do so will certainly cause huge problems at some point.

Friday, February 27, 2009

File Your Tax Return On Time

Tax time is here and you need to file your tax return on time! Failure to do so can be very expensive. Most taxpayers know the IRS will penalize you if you do not file your tax return on time. Most taxpayers do not know what the penalties are or how they accrue.

The IRS applies at least two types of penalties to taxpayers. If a return is filed late the IRS will assess a Failure To File penalty. This penalty is 5% of the amount of the tax due the date the return should be filed and accrues monthly (5% per month) for 4 ½ months. If the tax is not paid when the return is due then the IRS will apply a Failure To Pay Tax penalty, which is ½ of 1% per month and continues for a considerable period of time.

When both of these penalties are combined along with interest, the tax liability can begin to grow at a rate that would stagger the mind. This accounts for some of the horror stories you hear about people getting in trouble with the IRS. So the advice here is be sure to FILE YOUR TAX RETURN ON TIME. If you need help call a tax professional.

Tax Attorney

From time to time I have people call me asking if I am a tax attorney. The first thing I tell them is that I’m not. The first thing I ask them is why they feel they need a tax attorney. Sometimes people feel only a tax attorney can help them with their tax matters when really all that is needed is a true tax professional. For the most part tax attorneys represent taxpayers in tax court or some other tax matter that is criminal in nature.

Most of the problems taxpayers have are related to not filing a tax return or simply owing the IRS money and not being in a position to pay their tax liability in full. These situations can be resolved quickly without the highly skilled services of a tax attorney. It is best to obtain a good consultation from an experienced professional tax resolution firm first before trying to get an attorney involved. A good tax consultant will advise whether or not a tax attorney is needed.

Friday, February 20, 2009

Tax Professionals

Do you have a problem with the IRS or your state department of revenue? Is your problem so complex that you need the services of a professional tax resolution firm? If so choose carefully! Not all professional tax resolution firms are the same.

It pays to research the company you are considering. The Better Business Bureau is a great place to start. Most companies will have some type of negative information reported on them. This is normal. You are looking for problems that are reported in excess.

Another way you will be able to tell whom you should work with is by the quality of the initial phone conversation you have with a tax consultant. You may feel reasonably comfortable if the tax consultant asks you detailed questions about your situation and then gives you very high quality information as to how your tax liability can get resolved.

Just be aware of the fact that not all tax resolution firms are the same and no two tax consultants are the same. Many talk a big game. Remember the devil is in the details.

IRS Penalties

It won’t be long before April 15th is here. As almost everyone knows this is the deadline to file your federal income tax return. It is very important to file your returns by this date! If not then the IRS will assess a failure to file penalty against you.

Likewise if you fail to file by April 15th and you owe the IRS money and don’t pay then the IRS will assess a failure to pay penalty against you.

These penalties can be quite significant. I work in the tax resolution field and I see this problem with people all the time. My only word of advice is this…FILE YOUR TAX RETURNS ON TIME and pay whatever amount you owe BY APRIL 15th! You will save yourself a lot of money and a lot of headache!

Friday, February 13, 2009

Independent Contractors Beware

If you are an independent contractor you need to beware of a very dangerous pitfall. The pitfall I am referring to is making the decision to pay your subcontractors in cash and not report their earnings to the IRS. The consequences of not doing this can be quite severe especially if you have not filed your tax returns in quite a while. Consider the following story.

Bob, an independent contractor, has not filed his taxes in a while. In 2005, one of the unfiled years, he had a job that paid $250,000. He hired 5 subcontractors and paid each one $30,000 in cash and did not report this to the IRS. He paid an additional $60,000 for materials and various other expenses. All in all Bob received $250,000 and paid out $210,000 (5 subcontractors at $30,000 and $60,000 in materials and expenses). He did not do any work other than broker the deal for which he made $40,000. Not bad!
In 2009 the IRS sends Bob a HUGE tax bill listing his income as $250,000. With penalties and interest his tax bill is nearly $75,000! He says, “Wait a minute, I only made $40,000, not $250,000. I paid some guys to do most of the work.” The IRS says, “Prove it.” He can’t. He’s in deep trouble and needs a tax professional. Independent contractors beware! Don’t fall into this trap!

IRS Tax Debt Loans

Working as a tax consultant for a tax resolution firm is a very interesting profession. In my position I see people striving to come up with creative ways to “finance” their IRS debt. Amazingly enough the best source of financing such a debt turns out to be the IRS itself. Whenever a taxpayer owes money to the IRS they usually wind up getting into some type of installment agreement.

Taxpayers will borrow money from various sources to pay the IRS to avoid “owing” the IRS. They may resort to refinancing their home, taking out a home equity line of credit, credit cards or borrowing from their 401K or a life insurance policy. What most people may not realize is that the interest rate on an IRS installment loan can be lower than 6%! And better yet you don’t have to have your credit checked. If you need an installment agreement with the IRS call a tax resolution firm and let them negotiate it for you. It’s not a bad investment!

Friday, January 23, 2009

IRS Raises The Standard Deduction

Inflation is a serious concern to everyone. The IRS knows this too. That’s why the IRS is raising the standard deduction for 2008. This is the basic deduction that all taxpayers get when they fill out their tax returns. The deduction is based on the taxpayer’s filing status. The 2008 standard deductions are as follows:

Filing Status Amount
Married filing jointly or qualifying widow or widower $10,900
Head of Household $ 8,000
Single $ 5,450
Married filing separately $ 5,450

When filing out your tax returns your should not take only the standard deduction if you qualify to take more deductions. If your itemized deductions are more than your standard deductions then you need to itemize! This can get very complicated and very confusing. The best advice I have is to consult a professional tax preparation firm.

Should You File Your Own Tax Returns?

Each year as we approach tax time many taxpayers ask themselves the question, “Should I do my own taxes?” This is a question that requires much thought. Let’s consider a few things. For one, as tax time approaches a taxpayer who is planning on preparing their own tax return has to know exactly what to gather to support the information they put on their return. This within itself can be a formidable task.

Once all the information is gathered then the time comes to assimilate everything and begin putting it all in the right places on all the forms. Unless the taxpayer knows exactly what they are doing they will quickly become confused and frustrated. In the meantime they are burning up valuable time. Eventually they may have to turn it over to a tax professional, which may have to file an extension, which may ultimately wind up costing the taxpayer money by filing late (under certain circumstances).

If you are thinking about filing your own tax return then you may want to take a test to assess your skill level at preparing tax returns. Right now it’s not too late to get a professional on board. Good luck!

Tuesday, January 13, 2009

Becoming An S Corporation

In order for a corporation to become an S corporation it must meet all of the requirements of an S corporation status. All of the shareholders must agree to the S corporation status. The corporation must use a permitted tax year, or it may elect to use a tax year other than a permitted tax year, and must file Form 2553, Election by a Small Business Corporation to indicate it chooses the S corporation status.

All of the following requirements must be met in order for a corporation to qualify as an S corporation:
Shareholders must be citizens or residents of the US
Must not be a financial institution that uses the reserve method of accounting for bad debts
Must have no more than 100 shareholders
Must be a domestic corporation
Must have only one class of stock
Shareholders must be individuals, estates, and certain trusts and financial institutions
Shareholders cannot be corporations or partnerships

When setting up a business the business owner usually has a few different options with pros and cons to each method of organization. A CPA should be consulted in order to make the best decision in setting up the new organization.

Corporations – Organizational Expenses

Just like start-up expenses new corporations have organizational expenses and these expenses can be deducted too. Up to $5,000 of organizational costs can be deducted as current expenses under the current tax code with the remaining costs amortized over a 180-month period. The catch is that these expenses must be incurred before the end of the first year the corporation is in business. The corporation can amortize organizational costs incurred in the first year even if the corporation does not pay them in that year if the business is being run on a cash or accrual basis.
Organizational expenses that may be deducted include accounting and legal fees incurred by the organization, incorporation fees and expenses related to temporary directors, organizational meetings of directors and/or shareholder meetings. Expenses related to the transfer of assets to the corporation, printing costs, professional fees and commissions cannot be deducted. Preparing all the necessary documentation for corporate organizational expenses can be tricky and is best left to the tax professionals.

Corporations – Start-Up Expenses

Many people start their own business and set the business up as a corporation. And like all corporations they have start-up expenses. These expenses are incurred before the corporation begins business operations. When starting a new business a business owner has costs such as investigating the business and getting it started and may incur some of the following expenses:
Market research
Operations facilities and labor market analysis
Payroll expenses for training employees
Various professional services
Business related travel
For tax purposes the corporation can elect to deduct up to $5,000 of start-up costs as current expenses and amortize all remaining costs over a 180-month time frame. Form 4562 must be filled out and attached the corporate return for the year in which the amortization period begins. It is highly advisable to obtain the services of a tax professional for preparing all IRS related documents related to corporate returns.

Partnerships – Filing Requirements

Tax time is here and that means its time to file your partnership return. If your business is organized as a partnership and is engaged in a trade or business or has gross income then you must file an informational return on Form 1065. During the tax year if the partnership does not receive income no has any expenses that the partnership is treating as deductions or credits for federal tax purposes then the partnership is not required to file a return.
The due date of the return, Form 1065, is the 15th day of the 4th month following the close of the partnership’s tax year. If the partnership has more than 100 partners then the return must be e-filed. The return must be signed by a general partner of the partnership. There are many rules and regulations governing partnership returns. It may be best to consult with a professional tax preparer for preparing a partnership return. This could save big headaches later on.

S Corporation Taxes

An S corporation is subject to a variety of taxes. For example, an S corporation may be subject to a tax on excess net passive income if an S corporation has pre-S corporation earnings and profits and its passive investment income is more than 25% of its gross receipts. The S corporation’s status will be terminated if passive investment income is more than 25% of gross receipts for 3 consecutive tax years and the corporation had pre-S corporation earnings and profit at the end of each of those tax years.

Gross receipts from royalties, rents, dividends, interest and annuities would be classified as passive investment income. Net passive income is passive income reduced by deductions directly connected with the production of passive investment income. The tax code is very complex and it is advised that any business owner faced with any of the circumstances mentioned above should get a tax professional involved to make sure there are no problems in any of these areas.

Saturday, January 10, 2009

Keep Good Mileage Records

If you are in business for yourself (self-employed) and you drive a lot with your business then you may deduct the mileage used for business purposes. The most important thing though is to keep good mileage records. Currently the mileage deduction is right at 58.5 cents per mile. If you drive a lot this can add up to a sizeable deduction come tax time.

The rule is you can deduct mileage or you can claim all other automobile expenses such as tires, gas, oil changes, etc. However, once you choose one of these methods for tax purposes you cannot change it. Generally, the mileage deduction works best. All that is needed is some form of a logbook indicating the miles driven and the date. This should be enough to properly document your mileage and would serve appropriately in the event you were audited, in which case it would not be a bad idea to get professional representation.

Interest Free Loan from the IRS

The IRS is a business and they are in business to make money. That is one of the reasons the IRS does not make interest free loans. As a tax resolution specialist I have people ask me all the time if our firm is able to get the IRS to waive the penalties and interest on their tax debt. I tell them there may be certain circumstances under which the IRS may waive the penalties, but not interest.

The IRS must charge taxpayers interest by law. Think about it this way, if you did not pay taxes for a period of time and took the money you should have used to pay the taxes and invested the money then you would be earning interest on it. Likewise, the IRS is owed money they could be putting to use somewhere else in the economy and could be getting a return on their money. This is a very basic illustration but is does give a good reason why the IRS does not make interest free loans by waiving the interest portion of a tax debt.

Don't Claim Exempt

I work in the tax resolution field and one problem I see is individuals who owe big money to the IRS and the culprit is the taxpayer claiming exempt on their W-4. Many times there is no reason at all why the taxpayer made this particular designation. Sometimes it was because they were ill advised and sometimes it was due to the fact that they knew if they filed exempt they would take home more money immediately and would worry about the taxes later.

For most of these people they never got around to addressing the concern. Then after a few years had accumulated the IRS finally sends them a nice hefty tax bill and WHAM, they are caught in the trap. The IRS then seeks to collect. Fortunately most of these types of problems can be worked out thru a professional tax resolution firm. So remember, don’t claim exempt!

Claiming Your Refunds

If you have a string of unfiled tax returns with the IRS and you would like to get them all filed and get your refunds just keep in mind you are entitled to refunds going back only thee years. As the time approaches to file your 2008 tax return, due April 15, 2009, you will be able to claim a refund going back to 2006 (3 years – 2008, 2007 and 2006).

Likewise, if you have a refund due from years prior to 2006 then the IRS will not apply those refunds to any taxes owed. For example, if you owed the IRS $20,000 for the past 6 years, $4,000 from each year, and the IRS owed you a refund of say $3,000 from 2004, then the IRS would not apply that $3,000 to the total tax liability. I know this sounds rather stinky, however that’s the way it works. For more information as to how to best handle situations like these you should contact a tax professional.

An Important Note About Installment Agreements

Many taxpayers have installment agreements with the IRS for prior tax debts. If you have an installment agreement with the IRS then there is something you need to know especially as we approach the 2009 tax season. An installment agreement, believe it or not, is a luxury the IRS affords taxpayers who are not in a position to pay their tax debt in full and it is something that you want to maintain and protect if you have it.

One provision, or agreement, to the installment agreement is that you will file and pay all of your future tax obligations on time. As a tax resolution specialist I have spoken with many individuals who have not filed their returns for many years and all of a sudden they have to file because the IRS is about to levy their wages. They get into an installment agreement and then default the agreement shortly thereafter by not filing their next tax return on time. Don’t let this happen to you is you have an installment agreement. Get your next return filed ASAP!