Is an Offer in Compromise Right for You?

Posted on August 20, 2014 by Kursti Nakagawa

Is an Offer in Compromise the Right Tax Settlement Option for You?

Is an Offer in Compromise the Right Tax Settlement Option for You?

An Offer in Compromise is a tax settlement option that allows a delinquent taxpayer to settle a back tax balance for less than the full amount owed. While it is an excellent way for a taxpayer who meets the IRS eligibility criteria to resolve a tax debt, not all taxpayers qualify. Because the acceptance criteria are specific and the application process is long and complicated, it is often best to consult a qualified tax professional for help with this tax settlement option.

What are the Offer in Compromise eligibility criteria?

A candidate for an IRS Offer in Compromise must meet one of the following three eligibility criteria: 1) doubt as to whether they are liable for the tax debt, 2) doubt as to whether they have the financial means to pay the full balance of the tax debt or 3) a determination by the IRS that an would be an effective means of resolving the tax debt.

What is the process for obtaining an Offer in Compromise?

Make an accurate determination of the back tax balance.

File all unfiled tax returns. Check previously filed returns for accuracy and file amended returns when necessary.

Determine and document eligibility.

Gather sufficient documentation to support one of the three Offer in Compromise eligibility criteria. This documentation may include tax returns, financial records, disability claims and medical records, among other things.

Submit the Offer in Compromise application.

Complete all necessary forms according to the set IRS guidelines and submit together with the necessary supporting documentation and required filing fees.

Supply additional information as requested.

Promptly submit any documentation requested by the IRS during the review period.

How long does it take to obtain an Offer in Compromise?

The IRS will begin to review an Offer in Compromise application as soon as it is submitted. The review process normally takes between six and twelve months but can take up to a maximum of two years. If the IRS does not officially accept or reject an Offer of Compromise petition within two years from the date it is submitted, they are mandated to accept the original offer.

What options are available for paying the balance of an Offer in Compromise?
Once on Offer in Compromise is accepted, three payment plans are available to pay off the settlement amount. The three plans, which differ as to the amount of the initial payment, the number of installment payments and the time period over which the installments are made, are designed to accommodate taxpayers with varying back tax balances and financial situations. The three available payment plans are as follows: 1) the Lump Sum Cash Payment, 2) the Short Term Periodic Payment and 3) the Deferred Periodic Payment. These three plans allow for an Offer in Compromise settlement amount to be paid in full in anywhere from five months to more than 25 months, but within the ten year statutory collection period.

If you have an unresolved tax debt, visit us today at www.professionaltaxresolution.com. With over 16 years of experience working with the IRS, our experienced professionals will help you determine which tax settlement option best meets your specific needs. Contact us by phone at (877) 889-6527 or by email at info@protaxres.com to learn more about our customized tax settlement services and to receive a free, no obligation consultation.

Back Tax Balance Negatively Affects Credit Score

Posted on August 5, 2014 by Kursti Nakagawa

Where is My Refund?

Back Tax Balance Negatively Affects Credit Score – Back tax balances have a number of consequences, one of which is a negative impact on the delinquent taxpayer’s credit score. A back tax balance has the potential of reducing a person’s credit score by over 100 points, depending on the specific circumstances. If a taxpayer negotiates an Offer in Compromise or other tax settlement agreement that resolves a tax debt for less than the full amount owed, their credit score will be negatively affected for seven years from the date the partial payment settlement agreement is finalized. If, on the other hand, the back tax balance is not resolved and the IRS attempts to collect the tax debt by placing a tax lien on the taxpayer’s personal property, the lien will remain on the taxpayer’s credit report indefinitely, until the back tax balance is paid in full.

In addition to lowering a person’s credit score, owing back taxes has a number of other negative consequences. Because the IRS treats an outstanding tax liability like a loan from the government, they charge interest on any tax amount due. In addition, they assess a failure-to-pay penalty for each month there is a back tax balance up to a maximum of 25% of the initial tax amount owed. These two amounts are compounded over time and can potentially amount to as much as 50% of the original tax liability. Beyond charging interest and assessing penalties, the IRS will actively attempt to collect back taxes if the balance remains unpaid for any length of time. They will begin by issuing an IRS Letter or an IRS Notice and will follow that with more aggressive collection techniques such as a tax lien, a tax levy or a wage garnishment.

The negative effect on the credit score, the compounding financial assessments and the threat of enforced collection activities are all good reasons why back tax balances should be avoided if at all possible. If an outstanding tax liability does occur, the best course of action is to either promptly pay the back tax balance in full or request a short term tax extension. Although interest will continue to accrue during the period of an extension, the IRS will not initiate any further collection activities during the 120 day time period. If neither of these payment methods is an option, a taxpayer can pursue one of the numerous tax settlement options offered by the IRS. These tax settlement options include the Installment Agreement where the full balance of a tax debt is paid over time as well as the Partial Payment Installment Agreement and the Offer in Compromise where the IRS agrees to settle a tax debt for less that the full amount owed.

If you have a back tax balance that you are unable to pay, our tax settlement professionals can help you resolve it. With over 16 years in the business of resolving tax debt, we have a thorough understanding of tax law together with the experience to know which tax settlement option will be the best fit for your specific set of circumstances. For more information about our services, visit us today at professionaltaxresolution.com. Contact us by phone at (877)-889-6527 or by email at info@protaxres.com to receive a free, no obligation consultation.

Skinny on the Net Investment Income Tax

Posted on July 14, 2014 by Kursti Nakagawa

The Skinny on the Net Investment Income Tax

The Skinny on the Net Investment Income Tax – The Net Investment Income Tax is a 3.8% surtax imposed on capital gains, interest, dividends, gains from the sale of property and passive business income such as rents and royalties. It applies to taxpayers with a modified adjusted gross income in excess of $200,000 ($250,000 for a married couple) and is imposed on the total amount of a person’s net investment income or the amount by which that income exceeds the income threshold, whichever is less. Although the Net Investment Income Tax took effect on January 1, 2013, the IRS did not issue the regulations governing the tax until sometime in November. Because of this time lag, taxpayers who are subject this new passive income tax are just getting a handle on how it will affect them and what tax planning strategies may help to avoid some of the new tax burden.

The following are tax planning strategies that could reduce the amount of Net Investment Income Tax owed:

Gift appreciated property to a charity.
When you gift an appreciated asset, you can deduct its full appreciated value but it will not be subjected to the Net Investment Income Tax.
Transfer appreciated property to a relative with an income below the threshold.
The relative whose income is below the threshold can sell the appreciated asset and the gain will not be subjected to the Net Investment Income Tax.
Invest in tax exempt assets.
The interest and dividend payments from tax exempt investments such as certain state and municipal bonds are not subjected to the Net Investment Income Tax.
Sell an appreciated asset on the installment plan.
When an appreciated asset is sold on the installment plan, only that portion of the sale that is actually received is subjected to the Net Investment Income Tax.
Loan money to a business that you own.
Although most interest payments are subjected to the Net Investment Income Tax, this is not true for interest received from a loan made to a business that you own.
Rent property to a business that you own.
Although most rent payments are subjected to the Net Investment Income Tax, this is not true for rents received from a business that you own, even if you are not an active participant in the business.

As in all matters involving income tax, tax planning as it relates to the Net Investment Income Tax can result in a significant savings of tax dollars. Now that the IRS has issued the guidelines for this new tax, care should be taken to examine those guidelines and apply them to areas of potential tax savings.

If you have tax questions or a tax debt you are unable to pay, our tax settlement professionals are happy to discuss your tax resolution options free of charge. For more information about our tax settlement services, visit us today at www.professionaltaxresolution.com. Call us at 877.889.6527 or email us at info@protaxres.com to receive a free, no obligation consultation.

Do Not Ignore Mail from the IRS….

Posted on June 17, 2014 by Kursti Nakagawa

Ignoring Communication from the IRS Brings Serious Consequences

Why You Should Not Ignore Mail from the IRS – Although the issuance of an IRS Notice of Deficiency is usually the first step in the collection of an outstanding tax liability, ignoring it can have serious consequences. The Notice of Deficiency is an official communication from the IRS informing a taxpayer that the tax amount due shown on their tax return is less than the amount owed according to the calculations of the IRS. Because the IRS is allowed to collect a tax debt without proof that the debt exists, a taxpayer who receives an IRS Notice of Deficiency must either pay the tax liability shown on the notice or file a petition with the United States Tax Court contesting the tax amount owed. The burden of proof rests with the taxpayer.

A Notice of Deficiency is a formal written communication from the IRS. It is sent by certified or registered mail to a taxpayer’s last address of record for the purpose of announcing a tax deficiency. It must include an explanation of the deficiency together with a statement of the total amount of taxes, interest and penalties that have been assessed. In addition, the Notice of Deficiency informs the receiving taxpayer of their appeal rights with the United States Tax Court and states the cutoff date for filing an appeal. Although a IRS Notice of Deficiency is most often sent when there is a discrepancy between IRS calculations and the tax amount due shown a on a tax return, it can also be sent when no tax return has been filed.

A taxpayer must respond to a Notice of Deficiency within 90 days from the date it was mailed or within 150 days if it was mailed to an address outside of the United States. The taxpayer must either pay the assessed tax liability or to file an appeal with the United States Tax Court. Once the appeal deadline has passed, the appeal process is closed and the IRS has the authority to collect the tax amount owed. At this point, the IRS is likely to issue a Notice of Intent to Levy. The Notice of Intent to Levy allows a response time of 30 days (which is not required if the IRS determines that collection of the tax debt is in jeopardy), after which a taxpayer’s property can be seized to cover their tax debt. A taxpayer’s only option once the 90 day appeal deadline has passed is to pay the tax balance owed and apply for a refund, although even this action may not stop the collection process once it is set in motion!

Because tax law is complex and receiving an official communication from the IRS can be intimidating and sometimes confusing, it may be advisable for a taxpayer to enlist the services if a qualified tax professional before responding to a Notice of Deficiency. A CPA or Enrolled Agent will be able to determine whether the tax amount shown on the Notice of Deficiency is accurate and will be able to communicate effectively with the IRS on the taxpayer’s behalf.

If you have received an IRS Notice of Deficiency, a Notice of Intent to Levy or have been officially warned of an impending tax lien or wage garnishment, we can help you stop the immediate collection activity and work toward resolving your tax debt. Visit www.professionaltaxresolution.com to learn more about full range of tax settlement services. Contact us today at (949) 596-4143 or email us at info@protaxres.com to receive a free, no obligation consultation and get the tax relief you deserve.

Tax Deadline for Citizens Living Abroad

Posted on June 12, 2014 by Kursti Nakagawa

Tax Deadline for Citizens Living Abroad

Tax Deadline for Citizens Living Abroad – The tax filing deadline for United States citizens living abroad is on the horizon. That deadline is June 15^th (pushed to June 16^th for 2014). This automatic two month tax extension is granted to all overseas residents and does not require an extension request. The only condition for claiming the extension is for the taxpayer to attach a written statement when the return is submitted stating that both the primary residence and main place of business are outside of the country.

If a taxpayer residing abroad is unable to file a tax return within the automatic two month extension period, they must then file a written request to gain an additional four month extension. Although neither a late filing penalty nor a late payment penalty will be assessed on any returns covered by these extension periods, interest will normally accrue on any tax amount owed. As is true for taxpayers residing within the United States, all tax returns for United States citizens residing outside the county must be filed by the October 15^th tax extension deadline.

The United States is one of a few countries that requires its citizens living abroad to pay income taxes. This filing requirement applies to any United States citizen who earns more than $10,000 ($20,000 for a joint return) in any given year. Although rule applies even when some or all of the income is earned outside the country, certain income earned from foreign sources is exempt from taxation. In addition, taxpayers can sometimes claim a tax credit on their United States tax return for taxes paid outside of the county.

On top of filing an income tax return, United States citizens residing abroad are required to submit an FBAR Report if they hold foreign assets in excess of $10,000. Although the deadline for submitting the FBAR Report to the United States Department of Treasury is June 30^th, some of the information contained in the report is required for the tax return due two weeks earlier. Ownership in foreign businesses and holdings of other foreign assets must be itemized on the FBAR Report while Income from these same sources is required for the income tax return.

If you are a United States citizen residing abroad, our tax settlement professionals can help you evaluate and meet your tax filing requirements. The CPAs and Enrolled Agents at Professional Tax Resolution are experts in the area of foreign tax compliance and can help you evaluate your foreign income reporting requirements. Our experienced tax settlement professionals offer a free, no obligation consultation to answer any tax question or to discuss tax resolution optionsfor a tax debt you are unable to pay. For more information about out full range of tax services, call us at 877.889.6527 or visit our website at www.professionaltaxresolution.com.