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.