Tax Debt Reduced by Filing Past Due Returns

Posted on September 8, 2015 by Kursti Nakagawa

Tax Debt Reduced Through Filing of Past Due Tax Returns

Sometimes resolving a back tax balance is as simple as filing past due tax returns. The case of Mr. P involved just that! When he contacted our office, he had not filed either his corporate tax returns or his personal income tax returns for the last 10 or 11 years. Unsure of how to proceed and fearful of the potential consequences of his negligence, he contacted the tax settlement specialists at Professional Tax Resolutions for advice and help. Our team informed Mr. P that it would be necessary to contact the government immediately in order to collect the specific details necessary to come up with an appropriate plan of action. Among other things, we needed to know exactly which tax returns had not been filed as well as what back tax balances were showing for each year. In addition, it was imperative that we obtain a list of the official tax documents that the government had on file for each year that tax returns had not been submitted.

Anxious to put his tax problems behind him, Mr. P was eager to get started on his case. Within a few days, our tax professionals had contacted the government, received the requested information and were ready with a plan of action. Once our client had compiled the accounting records for his corporation, we compared them to those we had already received from the IRS and began to prepare the corporate income tax returns. Concurrently, we prepared M. P’s personal income tax returns for all years where one had not been filed. After all was said and done, the corporation was set up on a payment plan with the IRS and the FTB balance was lowered to the amount of the franchise fee plus accumulated penalties and interest. In addition, the client’s personal back tax balance was reduced by 80% with both the federal and state tax agencies.

As is evident from reviewing the case of Mr. P, it is important to select a tax professional who has a thorough understanding of the specific back tax issues one is facing. In particular, when a business entity is involved, it is important to choose a tax specialist who understands business accounting and entity taxation as well as the effect business income has on the individual’s personal tax balances. The tax team at Professional Tax Resolution is well equipped to resolve both personal and business tax issues. When a business is involved, they understand the interconnectedness of personal and business taxes and realize that it is important to consider both in order to come up with the best possible plan of action.

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 services, visit us today at www.professionaltaxresolution.com or call us at 877.889.6527. 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

Pros & Cons of Outsourcing the Collection of Tax Debt

Posted on August 24, 2015 by Kursti Nakagawa

Pros and Cons of Outsourcing the Collection of Tax Debt

Pros & Cons of the Outsourcing of Collection of Tax Debt

Pros & Cons of Outsourcing the Collection of Tax Debt

The Senate Finance Committee has recently revived their discussion of outsourcing the collection of back taxes. According to certain estimates, turning the collection of delinquent taxes over to private collection agencies would save the government more than two billion dollars over a period of ten years. However, opponents of privatization maintain that this would not be the case. In addition to emphasizing the potential threat to taxpayer security, they point to attempts at outsourcing the collection process that have not worked particularly well in the past. Time will tell whether the Treasury Secretary, who currently has the authority to make such a switch, will give it another try.

Those who favor privatizing the collection of tax debt say that it will raise more revenue that it costs. While this did not happen in a previous attempt at outsourcing that was made between 2006 and 2009, proponents say that the powers that be have learned from their past mistakes.They say that turning IRS collections over to private collection agencies will generate extra revenue that The IRS can use to hire new employees. In addition, they point to the fact that removing the task of debt collection from the IRS will allow the understaffed agency to focus its human resources on other important tax matters that have suffered in recent years.

On the other side of the fence, opponents of outsourcing say privatizing the collection of tax debt will not work. The National Treasury Employees Union points to data from the previous attempt at outsourcing which shows that the IRS collected over 60% more in the first two years of the program than the private collection agencies did – $139 million compared to $56 million. Although the private companies did better at collecting from cases where the amount owed was not in dispute, they lacked the authority to collect in the more difficult cases. The Center for Effective Government maintains that private companies will never be as effective as the IRS at collecting back taxes. According their spokesperson. “Collecting back taxes is an inherently governmental function, something that the government is uniquely positioned to do.” The IRS is the only collection agency that can garnish wages, levy bank accounts, Social Security benefits and 401k plans, place tax liens on property and even seize assets, all without judicial approval! These powers indeed make it the most powerful collection agency in the county, a fact that opponents of outsourcing tax debt collection are quick to point out.

Can the IRS Keep Your Refund?

Posted on April 14, 2015 by Kursti Nakagawa

Who Won’t Get a Tax Refund?

It is tax refund time and most taxpayers already have a plan for their tax refund. They will save it, invest it, spend it or maybe do a little of each. However, some taxpayers will file their tax return and never receive a refund. This is due to the fact that the IRS can keep a taxpayer’s refund to cover certain types of debt, some of which are discussed below.

A Back Tax Balance with the IRS: If a taxpayer has a back tax balance with the IRS (even if they are currently enrolled in a payment plan), the agency will keep either all or part of that individual’s tax refund and credit it toward payment of their back tax balance. Although the delinquent taxpayer’s refund is either reduced or eliminated altogether for that tax year, they can at least take comfort in the fact that the IRS is helping them pay their back tax bill. It is important to keep in mind that federal income taxes and state income taxes are connected. Therefore, if an individual has a past due tax bill with the state they live in (or have lived in), they can expect that the IRS will take some or all of their refund to cover any back tax amount owed to the state.

Delinquent Child Support: If an individual is behind on court ordered child support payments, that person’s state of residence is authorized to take any one of a variety of actions. The state can garnish their wages, seize their property or keep a portion or all of their tax refund. These actions are all designed to retrieve the money that is owed in back child support.

Outstanding Student Loan Payments: If an individual falls behind on student loan payments, the federal government can take some or all of their refund to repay a portion of their student loan. This action will normally occur only if a person’s student loan account is more than ninety (90) days past due. As with back tax balances with the IRS and overdue child support, any amount of a tax refund that is withheld will be applied to the existing student loan debt.

Overdue Obamacare Payments: This is obviously a new reason as to why tax refunds can be held by the government. The Affordable Care Act has associated with it two instances where the government can withhold a person’s tax refund. The first instance occurs when an individual has not purchased health insurance coverage for the current year. In this case, the government uses the taxpayer’s refund as payment for their required health insurance coverage. The second instance where a tax refund can be withheld occurs when a subsidy has been received to offset the cost of a health insurance policy. The subsidy is considered to be a tax credit and, just like any other tax credit, it is expected to be repaid. If a taxpayer has received such a tax credit and has not repaid it, the government has several options. They can put a lien on the taxpayer’s property, garnish their wages or keep some or all of their tax refund.

The Tax Extension Option

Posted on April 12, 2015 by Kursti Nakagawa

The Tax Extension Option

Tax Extension is a Very Good Option!

You are not alone if you do not file your tax return on or before April 15th. Although this is the official deadline for the filing of personal tax returns, each year more and more people apply for an automatic six-month tax extension. The number of taxpayers requesting an extension increased from 11 million in 2011 to over 13 million in 2013, an increase of almost 20% over the two-year period! Another interesting fact is that, in tax year 2014, 25% of those individuals who had requested and extension were still working on their tax returns in September, just one month before the October 15^th extension deadline.

Although procrastination is one reason for requesting a tax extension, there are other factors that contribute to tax returns not getting filed by the April 15^th filing deadline. Several of those are highlighted below:

Lacking Necessary Tax Information
Although the deadline for the mailing of brokerage statements is February 15^th, the information these statements contain may not be correct. These initial statements often say that changes may be coming. The mailing of corrected 1099s can actually occur right up until April 15^th which does not give the taxpayer enough time to complete the tax return before the filing deadline.

Missing Required Tax Forms
If a taxpayer holds investments that are structured as partnerships, they must wait for the K-1 Forms that are based on partnership income. These partnerships must first finish their own tax returns which can be extended until September 15^th before these forms are generated. This means that partnership K-1 Forms could be in the hands of taxpayers as late as the month preceding the extension deadline.

Increased Complexity of Tax Code
The increased complexity of the tax code has made tax returns more and more difficult to complete which, in turn, has made it harder to get them submitted by the April 15^th tax filing deadline. In addition to the introduction of such changes as the net investment income tax, two different dividend tax rates and the alternative minimum tax, taxpayers must now report all overseas holdings. All of these changes require increased tax preparation time for certain categories of taxpayers which, in turn, has resulted in an increase in the number of requests for tax extensions.

Although filing a request for a tax extension does not relieve a taxpayer of the obligation to pay any taxes owed, it is definitely a better option than filing an incorrect or incomplete return. As long as the request for a tax extension is either e-filed or postmarked before the end of the day on April 15^th, it will allow the requesting taxpayer to avoid the late filing penalty which usually amounts to 5% of any unpaid tax balance for any month or partial month that the return is late. In addition, it will give the requesting individual six full months to submit a complete and correct tax return.

The Consequences of FBAR Noncompliance

Posted on November 19, 2013 by Kursti Nakagawa

FBAR Changes…

Things are changing as the consequences of the FBAR Noncompliance are becoming stricter. Up to this point, the sentencing of offshore tax evaders has been fairly lenient. Although judges must attempt to follow sentencing guidelines written to ensure consistent punishment for defendants convicted of similar crimes, they have been given considerable leeway. Within these guidelines, the judges in these cases have been weighing such factors as the amount of financial loss or gain involved, whether the tax evader has assumed responsibility for the crime and whether they have provided information that has helped to build a case against others. They have also taken into account the defendant’s age, health and previous contributions to society. The following high profile cases shed some light on what type of sentences have recently been handed out to individuals who have been found guilty of concealing foreign income and assets:

Richard Werdiger – Seller of Diamonds and Jewelry

The offense: Richard Werdiger concealed more that $7 million in various offshore accounts between 2000 and 2008. During this time, the accounts earned more than . (https://www.leankitchenco.com/) 3 million which left him with a back tax balance of $400,000 by the time he was prosecuted.

The sentence: Because Werdiger failed to qualify for the Limited Amnesty Program offered by the IRS, the judge rejected his leniency plea and sentenced him to a year and a day in prison. He was also assessed a $3.8 million dollar civil penalty and a $50,000 fine.

Michael Canale – Army Surgeon

The offense: Michael Canale inherited a UBS bank account in 2000. By subsequently filing false tax returns and taking unreported cash withdrawals with the assistance of a Swiss financial advisor, he avoided paying over $200,000 in taxes.

The sentence: In April of this year, a judge sentenced Canale to 6 months in prison although he could have been given as much as 30 months.

Michael Reiss – Breast Cancer Researcher

The offense: Michael Reiss failed to declare offshore bank accounts in addition to changing banks and filing false FBAR reprots to hide more than $2.6 million in offshore assets.

The sentence: Although Reiss could have been sentenced to up to 37 months in prison according to sentencing guidelines, he was only required to serve one day. In addition, he was given three years of probation and required to perform 30 hours per week of community service during this time.

At the time of this writing, Ty Warner, Creator of Beanie Babies, is awaiting sentencing on charges similar to those described above. On October 2^nd, Mr. Warner pleaded guilty to offshore tax evasion. The extent of his wrongdoing includes unlawfully sheltering over $100 million in various Swiss bank accounts, filing a false tax return in 2002, underreporting his income by over $24 million between 1999 and 2007 and failing to file a Report of Foreign Bank and Financial Accounts (FBAR). He currently owes over $5.6 million in back taxes together with a civil penalty of $53.6 million. Based on precedent, it will be interesting to see what sentence the judge hands down.

If you need FBAR services, including help with current FBAR reporting or the filing of delinquent FBAR reports, the CPAs, Enrolled Agents and Tax Attorneys at Professional Tax Resolution can provide you with the help you are looking for. Contact us today to ensure that you meet the current requirements for the reporting of your foreign assets and income. For more information about this or other tax settlement services, visit us at www.professionaltaxresolution.com or call us at 877.889.6527 or to receive a free, no obligation consultation.