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Category Archives: IRS

IRS – Offer In Compromise Changes To Help Struggling Taxpayers

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The IRS has expanded its “Fresh Start” program by providing more flexible terms in its Offer-in-Compromise program. This will allow more financially distressed taxpayers to clear up their tax problems quicker than in the past. The changes announced by the IRS include revising the calculation for the taxpayer’s future income, allowing taxpayers to repay their student loans, allowing taxpayers to pay state and local delinquent taxes, and expanding the allowable living expense allowance category and amount. The IRS has made other revisions including how it determines a taxpayer’s reasonable collection potential and will look at future income from shorter periods in deciding a taxpayer’s ability to pay a tax liability. Lastly, the expanded allowable living expense standards incorporate average expenditures for necessities, and now include additional allowed expenses, such as bank charges and credit card payments.

The Internal Revenue Service just introduced another expansion of its “Fresh Start” initiative by adding more flexible terms to its Offer in Compromise program that will allow some of the most financially challenged taxpayers to clean up their tax debts faster than in the past.

This new program focuses on the financial analysis used to figure out which taxpayers will qualify for the Fresh Start Program. This program allows some taxpayers to clear their tax issues in as little as two years in comparison to four or five years in the past.

In certain instances, the revisions recently announced include:

• Changing the calculation for the taxpayer’s future income.

• Allowing taxpayers to pay back their student loans.

• Letting taxpayers pay state and local delinquent taxes.

• Broadening the Allowable Living Expense allowance category and amount.

Overall, the Fresh Start program is an agreement between a taxpayer and the IRS that settles the taxpayer’s tax liabilities for less than the full amount owed. It is usually not accepted if the IRS thinks the liability can be paid in full as a lump amount or a through payment agreement. The IRS reviews the taxpayer’s income and assets to make a determination of the taxpayer’s reasonable collection potential.

The IRS understands that many taxpayers are having difficulty paying their bills. As a result, the agency has been working to put in place easier changes to the Fresh Start program to reflect real life scenarios.

When the IRS calculates a taxpayer’s reasonable collection potential; it will look at only one year of future income for offers paid in five or fewer months, down from four years; and two years of future income for offers paid in six to 24 months, down from five years. All of the offers need to be fully paid within 24 months of the date the offer is accepted.

Living Expenses Allowed

The Allowable Living Expense guidelines are used in circumstances requiring financial analysis to decide a taxpayer’s ability to pay. The standard allowances allow consistency and fairness in collection determinations by using average expenditures for basic necessities of people in similar geographic areas. These guidelines are used when looking at an installment agreement and offer in compromise requests.

If you have a back tax balance that you are unable to pay, our tax settlement professionals can help you determine if the Fresh Start Initiative would work for you. 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 today at www.professionaltaxresolution.com. Contact us by phone at 888-534-2457 to receive a free, no obligation consultation.

IRS Levy – Must Follow Legal Guidelines

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irs levy formA tax levy is the confiscation of a taxpayer’s property for the purpose of covering a tax debt. It is one of the final steps taken by the IRS in the enforced collection of back taxes and is usually carried out only after all previous attempts to collect a tax debt have failed. Before the IRS seizes a taxpayer’s property, it must follow a set legal procedure outlined in the Internal Revenue Manual. This procedure begins with the issuing of two formal written notices, the official Notice of Tax Due and Demand for Payment and the Final Notice of Intent to Levy. The second notice also informs the taxpayer of their right to a hearing. Once this communication process has been completed, the IRS can seize the levied assets without further notification.

With certain specific exceptions, the IRS can seize one or more of a taxpayer’s physical assets. The physical assets that are exempt from an IRS levy include the taxpayer’s principal residence or any property other than a rental property that is used as a residence by another person. This exception can be overruled with written approval of the federal district court judge to cover a tax debt in excess of $5000. Other categories of physical property exempt from an IRS levy include furniture and personal effects up to a fixed dollar amount and any property used in a taxpayer’s trade or business unless the levy is approved by an IRS Director. The IRS also has the authority to levy such non-physical assets as wages, insurance policies, retirement accounts, dividends and bank accounts although, again, there are certain specific exemptions. The list of exemptions in this category includes workers’ compensation, unemployment benefits, some annuity and pension payments, certain types of Social Security benefits, disability and welfare payments, judgments in support of minor children and certain wages and other income.

Although the levy process is specifically outlined in the Internal Revenue Manual, a recent review of a random sample of property seizures conducted by the Treasury General for Tax Administration revealed that, in some instances, the IRS did not comply with the stated process. A review of 50 out of 747 property seizures conducted in the twelve month period from June 30, 2010 to July 1, 2011 uncovered fourteen instances where the IRS did not comply with the Tax Code. The infractions included not properly advertising the seized property, not correctly stating the amount of the liability on the seizure notice, incorrectly applying the proceeds from the seizure to the taxpayer’s account and incorrectly reporting information related to the seizure of the property to the taxpayer. In response to these findings, The Internal Revenue agreed to revise their Internal Revenue Manual to prevent further errors.

If you have received an IRS Notice of Tax Due and Demand for Payment or an IRS Notice of Intent to Levy, you should realize that confiscation of your property is imminent. Often the most effective response at this point is to enlist the help of a qualified tax settlement professional. Such an individual will understand tax law and will have experience negotiating with the IRS. If you are the target of a tax levy or any other type of aggressive collection activity by the IRS, our experienced tax professionals can help you stop the impending collection activity 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 (877)-889-6527 to receive a free, no obligation consultation.

 

Gift and Estate Tax Changes Expected to Occur at the End of 2012

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The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act which was signed into law in 2010 increased the amounts of the estate, gift and generation skipping tax exemptions and, at the same time, lowered the tax rates for each of these taxes. However, unless Congress takes some action before the end of the year, the estate tax benefit benefits provided by this law will expire on December 31, 2012. The major provisions of the 2010 Tax Relief Act are outlined below together the changes that will take place on January 1, 2013 if Congress does not take further action.

Gift Tax

  • Current

The gift tax exemption is $13,000 per year for gifts made by any one person to any number of people. There is a lifetime gift tax exemption of $5,120,000 for gifts made above the $13,000 limit.

  • January 1, 2013

The gift tax exemption will remain at $13,000 per year (with a possible increase for inflation) for gifts made by any one person to any number of people. The lifetime gift tax exemption for gifts made above the $13,000 limit is scheduled to revert to $1,000,000.

Generation Skipping Tax

  • Current

The GST exemption is $5,120,000 with a tax rate of 35% on amounts above the exemption limit.

  • January 1, 2013

The GST exemption is scheduled revert to $1,390,000 per year (with a possible increase for inflation) with a tax rate of 55% on amounts above the exemption limit.

Estate Tax

  • Current

The estate tax exemption is $5,120,000 with a tax rate of 35% on amounts above the exemption limit. Portability of unused estate tax exemptions of one spouse to the surviving spouse is allowed.

  • January 1, 2013

The estate tax exemption is scheduled revert to $1,000,000 per year with a tax rate of 55% on amounts above the exemption limit. Portability of unused estate tax exemptions of one spouse to the surviving spouse will no longer be allowed.

With January 1, 2103 fast approaching, taxpayers are anxious to see what, if any, action will be taken by Congress. If Congress does nothing, the exemptions for gift, generation skipping and estate taxes will revert to their 2009 levels and the tax rates for amounts above the designated exemption levels will increase to 55%. On the other hand, if Congress votes to extend the Tax Relief Act, the exemption limit for these taxes will remain at $5,120,00 with a possible inflation adjustment and the tax rate for amounts above the exemption limits will be held at the current 35%. Barring a full repeal of the estate tax, the third alternative would be the passage of some sort of compromise law that would place exemption limits and tax rates somewhere in the middle of the 2009 levels and those set by the Tax Relief Act of 2010.

If you owe back taxes due to a gift or inheritance, we can help you determine whether the assessed amounts are accurate based on past and current estate tax laws. Very often, the process of accurately interpreting the law and making use of tax benefits the law provides can result in a significant reduction in the tax amount owed. Following this analysis, our experienced tax settlement professionals will resolve any existing tax debt in the most effective way available. 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 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.