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Category Archives: IRS Penalties

Tax Penalties: Removing the Failure to Pay Penalty

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Have you received an IRS notice of Failure to Pay? Last week, we discussed the IRS penalties and consequences of Failure to Pay, which is when a taxpayer fails to either meet a tax filing deadline, or make a tax payment by its due date. The consequences for Failure to File include 5% per month of the taxes due according to a tax return that the IRS has prepared in your place, with the maximum penalty being 25% of the owed amount. For outstanding taxes, the monthly IRS Failure to Pay Penalty can be 0.25%–1.0% of the amount due, with the average being a 0.5% IRS penalty.  These penalties can accumulate over time and become a large financial burden.

So, how can you remove the IRS Failure to Pay Penalty and reach a tax settlement? The IRS realizes that not every situation is black and white. They understand that a taxpayer’s full compliance is not always possible. Here are a few steps that may be helpful.

Reasonable cause If there is a legitimate reason for your failure to pay, the IRS may opt to remove your penalties. About a third of all IRS penalties are later removed. Reasonable causes include: the death of a family member or close friend, unavoidable absence (including hospitalization, prison, rehab, etc.), destruction of the location where the taxpayer’s records are held (by fire, flood, etc.), inability to pay due to material impairment by civil disturbances (such as divorce), bad or incorrect advice from a tax professional or directly from the IRS, and errors made while acting with “ordinary business care and prudence.” Whatever your reason, be prepared to answer questions about your situation and have the necessary applicable documentation to back it up.

Penalty abatement If you do have a reasonable cause, you may apply for penalty abatement. This is a formal dispute of the penalties and interest from failure to pay. Penalty abatement can also apply when you have an administrative waiver, or if IRS made a mistake. If you have a reasonable explanation for your situation and failure to pay, your penalties and interest could be completely removed and a refund could be claimed. Penalty abatements can be filed through sending a letter to the IRS or completing a Request for Abatement and Refund form.

IRS Fresh Start Program If you were unemployed for 30 consecutive days in 2011, or in 2012 prior to April 17th, you may be eligible for the Fresh Start Program. This IRS initiative gives taxpayers 6 months to pay their taxes without incurring failure to pay penalties, as long as the tax liabilities are paid in full by October 15th, 2012. The Fresh Start Program also applies self-employed individuals with a 25% or more drop in income during 2011. To qualify, the adjusted gross income (AGI) of a single filer must be less than $100,000, and joint filers less than $200,000. There is an application form for the Fresh Start Program on the IRS website.

If you have received an IRS Failure to Pay notice, our tax specialists can help you determine if the assessed tax penalty is accurate. Then, they can work with you on a payment plan, or determine if there was a reasonable cause that could apply to penalty abatement. For more information about our tax debt resolution 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. 

IRS Penalties for Hiding Income Offshore

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You may remember Mitt Romney’s refusal to make his complete tax returns public due to his offshore accounts in the Cayman Islands in January. Romney at least reported the income to the IRS, if not the American public. The OC Register reported this week that Lake Forest resident Louis Joseph Vadino is being investigated by the IRS for evading 12 years of taxes totaling nearly $4 million. He did this mainly by opening foreign bank accounts and creating companies outside of the U.S. to hold property titles, some of them hidden under the relatives’ names. He is scheduled to go to trial at the end of July.

The IRS has specially trained examiners and international partners that make sure U.S. citizens and residents accurately report income and pay the appropriate taxes on foreign entities. Failure to report foreign sources of income may be a criminal act. Worldwide income and foreign bank or investment accounts are required to be reported on your U.S. tax return. Filing rules for tax returns on income, estates, and gifts are generally identical whether you are living in the U.S. or abroad.

If you do attempt to evade taxes on income from foreign sources, you can be subject to additional taxes, IRS penalties, interest, fines, imprisonment, or deportation if you have a green card.

The Offshore Voluntary Disclosure Initiative (OVDI) of 2012, an IRS initiative that was extended indefinitely after being in effect from 2009–2011, allows taxpayers who have hidden offshore accounts to become compliant and current with their taxes without criminal liability. While they can face a 27.5% IRS penalty, taxpayers in limited circumstances may qualify for a penalty of 5%. Offshore accounts or assets that did not surpass $75,000 in any calendar year will have a penalty of 12.5%. Taxpayers may choose to be examined by the IRS if they feel the penalties are disproportionate to their income. Unreported foreign gifts or bequests of $100,000 or more in one year can be penalized from 25%–35%, even if no taxes are due. Under the OVDI process, penalties are waived for this situation.

While the tax penalties under OVDI may seem high, the benefits of voluntarily reporting this income far outweigh the costs. The IRS tax penalties could be much higher if the offshore income is discovered by examiners, not to mention the criminal prosecution that can lead to time in jail.

If you need help with becoming compliant with the IRS, our experienced tax settlement professionals can help. We can also help you file your taxes. Please visit professionaltaxresolution.com for more information on our tax resolution services. You may also call us at (877) 889-6527 or email info@protaxres.com to receive a free, no obligation consultation.

IRS Back Tax Tips – Help with Late Tax Bills – Pay Your Tax Debt

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Did you receive an IRS notice that you owe back taxes? While owing money can be a big worry, ignoring the problem will only make things worse. There are options to pay your tax debt, even if you can’t do it all at once.

If you need help with tax resolution because you owe back taxes, you can take advantage of different methods of payment or request that the payments be broken up into installments. Here are some tips:

  • A late tax bill from the IRS is expected to be paid promptly, including the taxes owed, penalties, and interest. You may want to get a loan so you can pay it in full to avoid making installment payments if you do not already have the money ready. A bank loan could have a lower interest rate than what you would have to pay in additional interest and penalties.
  • Tax bills can be paid via credit card. Your credit card could also have a lower interest rate than what you would have to pay in additional interest and penalties.
  • Tax bills may also be paid through checks, money orders, cash, cashier’s checks, or electronic fund transfers.
  • If you are unable to pay in full, you may be eligible to request an installment agreement between you and the IRS. The agreement would break up the amount due into monthly installments. Make sure that your required returns are all filed and your estimated tax payments are current.
  • You can request installment payments whether your tax bill is over or under $25,000. You should be informed within roughly 30 days if the IRS approves or denies your request, or if they need more information.

If you receive a late tax bill, our experienced professionals can help you resolve your back tax issues. For more information about our tax debt resolution services, visit us today at www.professionaltaxresolution.com. Contact us by phone at (877) 889-6527 or by email at info@protaxres.com to receive a free, no obligation consultation.

Tax Levy – Understanding and Resolving IRS and State Tax Levies

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Do you have or know someone with a tax levy? A tax levy is serious, it is the actual seizure of a taxpayer’s property by either the IRS or a State Tax Agency. It is one of the final steps in the enforced collection process and is usually exercised only after all previous attempts to collect a tax debt have failed.

A tax levy is different from a tax lien. The lien simply gives the issuing tax agency priority over other creditors with respect to the identified property while the levy actually results in the confiscation of the property.

The IRS must officially warn a taxpayer before assets are seized to satisfy an existing tax debt. The first official notice to go out is the Notice of Tax Due and Demand for Payment. If the delinquent taxpayer fails to respond to this notice, it will be followed by the Final Notice of Intent to Levy together with an official notice informing the taxpayer of their right to a hearing. Once this official communication process has been completed, the IRS can seize the identified assets without further notification.

With certain exceptions, the IRS can levy any physical asset held by a taxpayer. They can also levy retirement accounts, bank accounts, dividends, wages, insurance policies and numerous other assets that may be the property of the taxpayer but held by someone else. One notable exception to the list of assets that are subject to the levy process is the taxpayer’s principal residence. The taxpayer’s residence can never be seized to satisfy a tax debt of $5000 or less and can only be confiscated to cover a debt in excess of $5000 with written approval of the federal district court judge or magistrate. In addition, property (other than rental property) that is used as a residence by another person cannot be seized to satisfy a tax liability of less than $5000. Similarly, real or tangible property used in a taxpayer’s trade or business cannot be levied without written approval of an IRS director. Other categories of physical property exempt from an IRS levy include wearing apparel, school books and furniture and personal effects up to a fixed dollar amount. Certain types of payments are also exempt. This list includes workers’ compensation, unemployment benefits, some annuity and pension payments, certain types of Social Security, disability and welfare payments, judgments in support of minor children and certain amounts of wages and other income.

The IRS is a very powerful collection agency and an IRS Levy is one of its most aggressive actions. A taxpayer who receives and IRS Notice of Tax Due and Demand for Payment or an IRS Notice of Intent to Levy should realize that enforced collection action is imminent. At this point, the most effective response is probably to enlist the help of a qualified tax resolution specialist. An individual who understands tax law and has experience working with the IRS may be able to stop impending collection activity. There is also the chance that a tax professional will be able to reduce the tax liability that resulted in the collection action or eliminate it altogether.

If you are the target of a tax levy or any other type of aggressive collection activity by the IRS or State Tax Agency, our experienced tax professionals can help you forestall the action and resolve the tax debt issue that caused it. For more information about our tax debt resolution services, visit us today at www.professionaltaxresolution.com. Contact us by phone at (949)-596-4143 or by email at info@protaxres.com to receive a free, no obligation consultation.

Penalty Abatements and Penalty Waivers. What are they and how to qualify.

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Penalty Adjustments and Penalty Waivers

The assessment of penalties and interest are methods designed by the IRS and State Tax Agencies to encourage the timely filing and payment of taxes. These charges are imposed when a taxpayer fails to meet a filing deadline or fails to pay a tax amount when it is due. The assessment of a tax penalty is announced through an IRS Letter, an IRS Notice or a similar written notification from a State Tax Agency. The notice must include the name of the penalty, the reason the penalty is being assessed and an explanation of how the penalty amount has been calculated. The IRS Notice and the IRS Letter as well as notices issued by State Tax Agencies are computer generated so often errors occur. It is therefore important to verify that the reported penalty amount is correct before making payment or proceeding with any type of tax settlement procedure.

Since the accumulation of penalties and interest can represent a significant portion of an outstanding tax liability, obtaining a penalty waiver is often one of the most productive and efficient tax settlement options available. That being said, penalty waivers can be difficult to obtain. As with other tax settlement options, they are only granted under certain very specific conditions and they require strict documentation that those conditions have been met.

Normally, a penalty waver will be granted only under a condition that is called Reasonable Cause Relief.  In order meet the requirements of Reasonable Cause Relief, the taxpayer must show (1) that tax filing deadlines were not met or tax payments were not made as the result of some circumstance that was beyond their control and (2) that they took reasonable steps to counter the effects of the uncontrollable event and were still not able to file or pay their taxes.

The short list of events that may satisfy the requirements of Reasonable Cause Relief includes (1) a serious illness or death, (2) a fire, casualty or other natural disaster, (3) the inability to obtain tax records, (4) incorrect advice from a tax professional or (5) incorrect advice directly from the IRS.

In order to obtain a penalty waiver from either the IRS or a State Tax Agency, the taxpayer or their tax settlement representative must first submit a written request for the abatement. Following this, the taxpayer must meet the burden of proof that they acted in a responsible and prudent manner and still were unable to meet their tax obligations. The required burden of proof falls under the following three main headings:

  • The Uncontrollable Circumstances

–          What events happened?

–          When did the events occur?

–          Were the events such that they could not be controlled or anticipated?

–          How did the events prevent the taxpayer from filing or paying the taxes?

 

  • The Correlation Between the Uncontrollable Circumstances and the Late Filing or Payment

–          Did the taxpayer take steps to mitigate the effects of the uncontrollable circumstances?

–          How were other financial affairs handled during the time period in question?

–          Did the taxpayer pay creditors other than the IRS or State Tax Agency during the time period in question?

–          Is there a direct correlation between the uncontrollable circumstances and the late filing or payment of the taxes?

–          Did the taxpayer have a previous record of either late filings or late payments?

  • The Supporting Documentation

–          Is the provided documentation sufficient to show that the conditions for Reasonable Cause Relief have been met?

–          Was the documentation provided by an objective third party?

Since penalties are assessed for the purpose of enforcing compliance and creating fairness within the tax system, they are normally waived only when Reasonable Cause Relief can be documented according to the criteria described above. The procedure for obtaining an abatement of tax penalties is specific and complex and may require the assistance of a qualified tax settlement professional.

If you have been assessed penalties due to an existing tax debt, we can help you determine whether the assessed penalties are accurate and whether you meet the qualifications for a penalty waiver. Our experienced tax settlement professionals can also help you submit your penalty waiver request according to established IRS or State Tax Agency guidelines. For more information about our tax debt resolution services, visit us today at www.professionaltaxresolution.com. Contact us by phone at (949)-596-4143 or by email at info@protaxres.com to receive a free, no obligation consultation.