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Category Archives: Back Taxes

Have IRS Tax Debt? Need a New Passport? The GAO wants to know.

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As of the end of fiscal 2010, the balance of reported unpaid federal taxes was about $330 billion according to the IRS. This is a huge amount and as we have written about in the past, the enforcement of the tax laws and the tax code is on Government Accountability Office’s list of high-risk areas.  The deficit being what it is it may come as no surprise that the GAO was asked to investigate, by cross referencing unpaid federal taxes and passport issuance, the magnitude of known unpaid federal taxes for individuals who were issued passports.  Selecting a past year, the GAO did a study for the fiscal year 2008 to identify examples of passport recipients who had known unpaid federal taxes.

They study discovered that individual states issued passports to about 16 million individuals during fiscal year 2008 and that of these, over 224,000 individuals (over 1 percent) owed more than $5.8 billion in unpaid federal taxes. That is JUST those individuals who got new passports in 2008 – not all passport holders.

Does that come as a surprise? Currently each state is not authorized to restrict the issuance of a passport to an individual because they owe federal taxes. In addition, federal law does not permit the IRS to disclose taxpayer information, including unpaid federal taxes to State officials unless the taxpayer consents. The reason this is at least somewhat surprising is that in contrast, federal law does permit certain other restrictions on the issuance of passports to individuals, such as for those individuals owing child support debts over $2,500.

Really, the problem is likely far greater than 1% of the newly issued passport holding population.  In addition to the obvious population balance of all valid passport holders for the studied year of 2008, the estimated amount of unpaid federal taxes was actually likely understated because it excluded individuals who had not yet filed tax returns or who had underreported income.

Making matters harder, individual States currently cannot compel a passport applicant to provide a Social Security Number (SSN). Because the IRS uses the SSN to identify each taxpayer, without an SSN you cannot match an individual back to their IRS data.

This study had produced such alarming results already and the GAO wanted to know a bit more. They took the 2008 study and dug deeper into the backgrounds of a very small group of just 25 passport recipients. Clearly this is a tiny study and cannot be reflective of the population as a whole. That said, some pretty interesting things were discovered.  When investigating for abuse related to the federal tax system or criminal activity, of these 25 cases, at least 10 passport recipients had been indicted or convicted of federal laws! In addition, the IRS had assessed trust fund recovery penalties on several passport recipients; a penalty which is applied when an individual does not remit payroll taxes to the federal government.  How does someone fall behind on Payroll taxes?  Instead of acting appropriately as the trustee of an individual employee’s withholding and forwarding it onto IRS, they divert the money for other purposes. Using payroll taxes is a big crime; in fact the willful failure to remit payroll taxes is a felony underU.S.law.

In this smaller study of the 2008, of those 25 new passport holders, some had accumulated substantial wealth and assets, including million-dollar houses and luxury vehicles, all while failing to pay their federal taxes. In fact, of the 25, at least 16 passport recipients traveled outside the country all while owing federal taxes and another 4 passport recipients actually resided in another country at the time! Worse yet, two individuals used the identities of deceased people to fraudulently obtain passports in the first place and then used the passports to travel toMexico,France, and Africa. Ironically in one case, the unpaid tax debt belonged to a deceased individual and in the other; the debt was actually incurred by the imposter.

If this small study is any indication, there appears to be a big opportunity to crack down on passport issuance for those who owe federal tax debt. Although nothing official has been implemented to date, Congress could pursue policy to link federal tax debt collection and passport issuance by enabling States to screen and prevent individuals who owe federal taxes from receiving passports.  This would require transparency and more communication between the IRS and the individual States, but it seems that the opportunity to collect unpaid tax debt would be greatly improved as a result.

 

If you have an unresolved tax debt, visit us today at www.professionaltaxresolution.com for more information about our customized tax settlement assistance. The CPAs and tax professionals at Professional Tax Resolution use their extensive knowledge of the tax code to provide taxpayers with the best settlement option available. Contact us by phone at (877) 889-6527 or by email at info@protaxres.com to learn more about our services and to receive a free, no obligation consultation.

IRS Itemized Deductions and Volunteer Work at Schools

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Interesting questions come up everyday at our tax firm.   On the mind of many parents particularly those with part time or full time self-employment, relates to how their volunteer work for their child’s school might affect them from a tax standpoint.  Now that is October, children have settled into their classrooms and many schools have begun requesting parent volunteers. This practice is becoming more and more common because schools face such large spending constraints.  School volunteers might be needed for sports programs, tutoring, maintenance, bulletins, books fairs, drama productions, bands, academic tournaments or even bake sales.

It doesn’t always occur to the parent, but there may be some tax benefits that follow as a result. The question we are asked about most often is the value of volunteered time. The IRS does not allow any charitable deduction for this and the principle is simple; charitable deductions are a donation of taxable income. Because the donated time didn’t create income, no deduction from income occurred.

That said, almost every voluntary effort incurs some cost for the individual volunteer. These out-of-pocket expenses related to volunteering for tax-exempt organizations are indeed tax deductions. A qualified CPA will know that these deductions are reported on Schedule A and are thus only available to taxpayers who itemize deductions.

Clearly in order to deduct costs incurred during volunteer work, the charitable organization must not reimburse the expenditures. In addition, the expenses must have a direct connection to volunteered services and have arisen due strictly to the volunteering. Taxpayers cannot deduct any expenses for personal or general living costs, such as meals eaten while conducting a volunteer service. However, something like buying pizza for the speech team during travel for a school event is in fact tax-deductible.

Likewise, supplies for school projects are tax-deductible along with items given as prizes or awards. Keeping copies of receipts to support any expenses related to volunteer activities is something we always recommend. In addition, we also document the nature of the school event for the deduction on the tax return itself.

One deduction opportunity many parents do not realize is that driving for charitable activities may also incur a tax deduction. It is important to keep a record of the date, travel purpose, and numbers of miles as these are requirements of the IRS. Each year there are standard IRS mileage rates established for using a personal vehicle to perform a charitable function which is then calculated on the return. A word of caution however, mileage driven to and from ballgames or performances doesn’t count as charitable; actual work as a volunteer is required.

Also not every school related purchase will qualify as a deduction.  Merchandise sold at school activities are not tax deductable so buying candy, popcorn, apparel with the school logo, and similar items will not qualify as a donation.

These tips are examples of the types of the proactive, year-round tax guidance we provide to our clients. At Professional Tax Resolution we often amend prior year returns and file back taxes for new clients, many of whom qualify for more deductions than they realize.  

If you have an IRS or State Tax problem, our experienced tax professionals can help you resolve the tax 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.
 

 

Business Tax Debt from Back Payroll Taxes is Devastating to Staff and Owners.

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In light of the current economic slowdown and the tightening of credit, it is more common than ever for employers find themselves burdened with unpaid payroll taxes. Business owners generally match the employment taxes withheld from their employees’ pay checks and remit those to the IRS along with the standard federal and state tax withholdings.  When times are tough, it is not uncommon for an employer to delay in paying its payroll tax withholdings in the hope of being able to send them later when circumstances have improved. (thereader.com)  A business owner may simply be waiting for a contractor or client to pay an invoice or for the bank to approve a short term loan. If one of these improvements doesn’t materialize, the business can unintentionally be left unable to pay the back payroll taxes and can suddenly face a very sizable and unexpected tax debt.

No matter what the cause, delinquent payroll tax returns and unpaid payroll taxes can cause a host of problems. Some portion of a company’s payroll taxes are amounts withheld from employees’ wages to pay their share of federal withholding taxes, Social Security and FICA.  In other words, a portion of the total amount owed is actually the employee’s money that the employer is holding in trust to remit to the IRS or State Tax Agency on the employee’s behalf.  If a company fails to file a payroll tax return or pay its payroll taxes, the employee’s IRS and State accounts will not be credited at tax filing time. 

Because payroll taxes include amounts withheld from an employee’s wages and held in trust by the employer, the IRS pursues collection of a payroll tax debt much more aggressively than it does other tax delinquencies. To encourage compliance with the timely payment of withheld income, employment and social security taxes, the IRS has created a unique and potentially devastating penalty called the Trust Fund Recovery Penalty.  This penalty can be assessed against any person responsible for remitting payroll tax payments and can be assessed whether or not the business continues to operate. Since the IRS defines a responsible person as any person or group of people who have the power to direct, collect, account for or pay trust fund taxes, that person may fit any one of the following descriptions:

  • A corporate director or shareholder
  • An employee or officer of the business or corporation
  • A partnership member or employee
  • A board member of a non-profit organization
  • Any other person with control or authority over the payment of the taxes

In addition to the steep Trust Fund Recovery Penalties, the collection process for payroll tax debt is accelerated and settlement agreements are much more difficult to obtain.

Due to the combined effect of the factors discussed in the previous paragraph, a payroll tax debt can potentially result in the downfall of an otherwise successful business. In light of this risk, our firm always advises financially troubled business owners to make every effort to comply with all payroll tax filing deadlines and to pay the related taxes in a timely fashion.  If a payroll tax debt already exists, we encourage prompt action as the best way to get control of the situation and obtain tax relief. Tax debts arising from unpaid payroll taxes can be very significant since they include the assessment of a substantial Trust Fund Recovery Penalty in addition to the standard failure to file penalties, late payment penalties and interest assessed on the unpaid balance.  Obviously the larger the tax debt, the more difficult it can be for a smaller company to recover and find tax relief.

If you are a business with a payroll tax debt, we can help you evaluate the available tax settlement options and resolve your payroll tax debt problem. Because we know the collection laws and have experience negotiating with the IRS, we are in a better position than an individual taxpayer to stop enforced collection activity and to arrive at a reasonable tax settlement with the IRS. For more information about our tax debt resolution services, visit us today at www.professionaltaxresolution.com. With over 16 years of experience, we will negotiate with the IRS on your behalf. Contact us by phone at (949)-596-4143 or by email at info@protaxres.com to receive a free, no obligation consultation.

 

He Owed the IRS $80,000 in Back Taxes. We Reduced His Tax Debt to Zero!

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Steve H. came to Professional Tax Resolution after receiving notice of a wage garnishment from his largest customer.  Steve, a technology consultant, had failed to file tax returns for six years and, according to IRS calculations, owed over $80,000 in back taxes, penalties and interest.  Tax settlement plans for taxpayers with numerous un-filed tax returns always begin with gathering the records necessary to prepare the un-filed tax returns. In this case, the taxpayer was able to gather some information from banking records and some from customers for which he had provided services. Fortunately for this taxpayer, his wife had worked for several years and had had federal and state taxes deducted from her paycheck. We were able to obtain and verify additional tax information by obtaining IRS wage and income transcripts.

After gathering all possible relevant information, we were able to prepare all of the outstanding tax returns.  While balances were due in some years, refunds were owed in others. We were able to request that the IRS apply refunds owed to years where balances were due such that the net result was an outstanding tax liability of zero. It is never advisable to wait for a wage garnishment, tax lien or tax levy to resolve an outstanding tax issue. However, even when a tax issue seems practically unsolvable, there are tax resolution options available.  Professional Tax Resolution always looks at all available tax settlement options and provides a tax debt resolution plan for even the most complicated cases.

Haven’t filed your taxes in years? Don’t give up! Some Back Tax Tips.

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Seeking Back Tax Help

Finding back tax help can be so confusing and stressful that some taxpayers simply give up. When attempting to resolve IRS issues, the help of a qualified professional can be invaluable. Yet finding the right person for the job can be a difficult task in itself.  Many types of companies advertise back tax help but some are made up of salespeople and marketing agents who know very little about negotiating with the IRS. Tax law is difficult to understand and the policies and procedures of the IRS are complex so it is important to find a tax professional that is not only honest and ethical but also experienced in providing back tax help. To insure that an individual meets these qualifications, it is a good idea to verify their current licensure with the state certification agency and the Better Business Bureau. A licensed tax professional that specializes in back tax help is required by their profession to meet stringent continuing education requirements in order to stay current with the never ending stream of changing tax regulations. Hiring a tax professional with verifiable credentials is really the only way that you can be sure of the qualifications of the professional you are hiring.

Let a Professional Do the Talking

Many taxpayers contact us only after they have made numerous attempts to resolve their back tax issues on their own.  Very often they seem surprised that the IRS was not very helpful in getting their back tax issue resolved.  While IRS employees are usually very knowledgeable, it is important to remember that it is the job of most IRS agents to collect the tax you owe. Also, the IRS is divided into many unconnected departments so there is a good chance that the person you are talking with does not even know how help you with your issue. At Professional Tax Resolution, we work with the IRS on a daily basis and are familiar with their policies and procedures.  We know how to communicate with them effectively and will negotiate with them on your behalf to resolve your back tax issues.

Avoid the Penalties and Interest

Many taxpayers are very slow to resolve you their back tax issues. If you are one of those people, it is important to remember that back tax balances continue to accrue penalties and interest until the balance is ether paid or a tax settlement is reached. It is not uncommon for penalties and interest to make up more than half of the total balance that a taxpayer owes.  An experienced tax professional will examine all of your tax settlement options including the waiver of penalties and interest and partial payment settlement options where the IRS accepts an amount that is significantly less than the amount actually owed.

Find the Right Professional

When you are in need of back tax help, probably the most important decision you will make is the selection of a tax professional.  At Professional Tax Resolution our CPAs and Enrolled Agents have many years of experience helping taxpayers resolve even the most complicated tax debt situations. Our process will always begin at the source of the problem and follow the solution through to a complete resolution. We encourage our customers to check our memberships, reviews and affiliations for verification of our credentials and our past successes.