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.

4 Tax Surprises and How to Handle Them!

Posted on March 13, 2013 by Kursti Nakagawa

4 Surprise Taxes and How To Handle Them!

One thing is certain besides taxes….you probably will want to stay on IRS’s good side! Here are some common items you may come upon this tax season. These are a few terrible tax surprises and how to handle them!

Alimony Collected

Now that you made it through the divorce you will also have to accept the fact that the IRS is going to take some of your alimony.

It is important to know that alimony is completely taxable. Alimony and other similar payments of the type from your former spouse are taxable the year that you receive them. Child support money on the other hand is not taxable.

It is important to make your IRS payments on alimony and other untaxed income via estimated filings so that you will not have a large tax bill in April.

One positive for the person that is writing the alimony check, the check amounts are deductible.

Unemployment Benefits

Unemployment benefits are considered wage income; therefore, the IRS does receive a portion of these benefits.

So that you do not have to pay a big tax bill in April, it is important, that when you apply for unemployment benefits, you select the option to have your federal income taxes withheld. Similar to payroll withholding, you fill out a form called the federal W-4Voluntary Withholding Request, or a like IRS-acceptable form. This way 10% of your benefit amount will be taken out of each unemployment check.

Excused Debt

The IRS still collects from the total amount of debt owed, even if some debt is excused. For example, if you are able to modify your credit card bill from $10,000 to $5,000 you can expect the credit card holder to send you a form called the Form 1099-C or a similar statement. The rest of money owed from the debt will be labeled miscellaneous income and you will be expected to pay it.

It is important to keep in mind that there are certain debts that can be forgiven. The Mortgage Debt Relief of 2007 states that certain homeowners that qualify will be forgiven and will not have to pay taxes on that amount.

Money and Other Prizes Won

Are you lucky? Did you win a $1,000 raffle? Money won as a “prize” is listed on the lengthy list of taxes that needs to be paid.

Regardless of whether you win a monetary amount or any type of non-monetary gift you are expected to pay taxes on it. You must pay taxes on the fair market value of any property that you win. In most cases the company you won from will send you a 1099 form in which you will declare how much you have won.

It is important that you are careful when you report the amount of a non cash property. If you under report you could be subjected to an audit.

If you have tax any questions or 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 services, visit us today at www.professionaltaxresolution.com. 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 settlement option will be the best fit for your specific set of circumstances.

For more information about our tax debt resolution services, visit us at www.professionaltaxresolution.com. Contact us by phone at 877.889.6527 to receive a free, no obligation consultation

Tax Break for Homeowners About to Expire

Posted on November 13, 2012 by Kursti Nakagawa

Tax Break Set to Expire for Homeowners

Time is running out on a tax break that is aiding troubled homeowners from paying thousands of dollars to the IRS.

The Mortgage Forgiveness Debt Relief Act of 2007 will need to get extended by Congress by the end of this year or many homeowners will owe the IRS money. These homeowners would have to begin paying income taxes on the portion of their mortgage that was forgiven due to a short sale, foreclosure, or principal reductions. For example if a person owes $150,000 on their home and it sells for a $100.000 in a foreclosure situation, the IRS could tax them on the remaining $50,000. Someone in the 25% tax bracket would pay $12,500 on the foreclosure. Short sales and principal reductions would also have similar taxes.

Real estate agents have stated that many people selling their homes this year in distress sales are very anxious to get rid of their homes by the end of the year in case the Debt Relief act does not get extended.

If the tax break does not get extended a large number of homeowners could be affected. The number of distressed home sales is staggering. Each month more than 50,000 homeowners go through a foreclosure. Short sales have also tripled over the past three years to about a half a million a year. Due to these numbers many agree that the current Debt Relief Act is a “no-brainer!”

However, some experts are skeptical that the exemption will get extended. They believe now that the election is over and with the holidays coming up that Congress will have very little legislation going forward by the end of this year. Meanwhile others disagree and believe that Congress WILL extend the act by the end of the year.

“Both parties, both houses of Congress agree it’s good policy and it needs to get to done,” said Jamie Gregory, chief lobbyist for the National Association of Realtors, which supports the extension. “The hold up is the process. I’m confident it will get done. I just don’t know how.”

Even if the Congress allows the exemption to run out this does not mean that all borrowers with a forgiven mortgage debt will be subject to pay the IRS. For example, if the debt is discharged in a bankruptcy, no tax is due. Also certain borrowers are protected in some states, such as California.

If you have tax debt you are unable to pay or any other questions our tax settlement professionals are happy to discuss you’re tax resolutions free of charge. For more information about our services, visit us today at www.professionaltaxresolution.com. 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 settlement option will be the best fit for your specific set of circumstances.

For more information about our tax debt resolution services visit us at www.professionaltaxresolution.com. Contact us by phone at 877.889.6527 to receive a free, no obligation consultation.

IRS Tax Debt – Cancellation of Debt – Mortgage Forgiveness Expires in 2012

Posted on November 23, 2011 by Kursti Nakagawa

Tax Alert! The Mortgage Forgiveness Act is Set to Expire at the end of 2012

As many of you who have had a short sale or home forclosure know, under ordinary United States tax law, a short sale produces a tax liability. When a lender agrees to accept a short sale, the amount of mortgage debt forgiven is considered to be income for the borrower and is therefore subject to taxation by the IRS.

In 2007, the passage of the Mortgage Forgiveness Act served to protect homeowners from this potential tax burden. With the passage of the Mortgage Forgiveness Act, the amount of debt forgiven in a short sale was excluded from being a tax liability. Although this tax liability protection covers most short sales, it does have the following limitations:

• It applies only to the sale of a primary residence, not a second home or a rental property.
• It usually does not include home equity loans.
• The maximum amount of debt forgiveness is $1 million.

We often get calls from taxpayers who are very concerned about this type of liability. With our headquarters located in California, the home value crisis and the potential tax burden is top of mind. Because our CPAs know and understand the laws and regulations for recourse and nonrecourse loan structures, we have helped many clients remove liability for the gain that results from the short sale or foreclosure of a primary residence or from a bankruptcy filing.

Why the tax alert? The Mortgage Forgiveness Act will expire in 2012 unless Congress votes to extend it.

Already facing a short sale or forclosure? Call or contact us today to get your liability removed before it is too late.Click the “Learn More Link” or Call (877) 889-6527 to have one of our CPAs provide a Free, no obligation consultation.

Amazing Tax Settlement – $1,600,000 Tax Debt Reduced to Zero!

Posted on July 14, 2011 by Kursti Nakagawa

Karen M. was recently divorced and owed the IRS over $1,600,000 for a joint IRS liability she had incurred with her ex-husband. The debt had accumulated over many years and, as is usually the case, included a significant dollar amount of assessed penalties and interest. The taxpayer was newly single, lived on a modest income and had no possibility of settling the debt owed to the IRS. After looking at the taxpayer’s situation and all of the available tax settlement alternatives, we determined that filing for Innocent Spouse Relief gave the taxpayer the most realistic chance of one day being free of the tax debt.

Innocent Spouse Relief provides a taxpayer relief from tax debt if their spouse or former spouse failed to report income, reported income improperly or claimed improper deductions or credits. While the benefits from obtaining this tax settlement option can be significant, it is usually difficult to obtain. Generally, a taxpayer requesting Innocent Spouse Relief must claim and document that he or she had no knowledge of the unreported income and did not receive the benefits of that income.

In the case of Karen M., we were able to provide documentation demonstrating that our client had no knowledge of the unreported income and had limited involvement in the financial matters of the family. We were also able to prove that she did not receive the benefits of the income that was never reported and that the non-innocent spouse had a history of hiding income from both her and the IRS.

Professional Tax Resolution and the taxpayer were thrilled when a letter was received from the IRS indicating that the Innocent Spouse filing was accepted and that the $1,600,000 tax debt was reduced to zero. This is another good example of why CPAs, Enrolled Agents, and Attorneys are often so passionate about what they do. In most cases there are tax settlement options available even in the most complicated situations.