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.

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.

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.

Tax Deadline for Citizens Living Abroad

Posted on June 12, 2014 by Kursti Nakagawa

Tax Deadline for Citizens Living Abroad

Tax Deadline for Citizens Living Abroad – The tax filing deadline for United States citizens living abroad is on the horizon. That deadline is June 15^th (pushed to June 16^th for 2014). This automatic two month tax extension is granted to all overseas residents and does not require an extension request. The only condition for claiming the extension is for the taxpayer to attach a written statement when the return is submitted stating that both the primary residence and main place of business are outside of the country.

If a taxpayer residing abroad is unable to file a tax return within the automatic two month extension period, they must then file a written request to gain an additional four month extension. Although neither a late filing penalty nor a late payment penalty will be assessed on any returns covered by these extension periods, interest will normally accrue on any tax amount owed. As is true for taxpayers residing within the United States, all tax returns for United States citizens residing outside the county must be filed by the October 15^th tax extension deadline.

The United States is one of a few countries that requires its citizens living abroad to pay income taxes. This filing requirement applies to any United States citizen who earns more than $10,000 ($20,000 for a joint return) in any given year. Although rule applies even when some or all of the income is earned outside the country, certain income earned from foreign sources is exempt from taxation. In addition, taxpayers can sometimes claim a tax credit on their United States tax return for taxes paid outside of the county.

On top of filing an income tax return, United States citizens residing abroad are required to submit an FBAR Report if they hold foreign assets in excess of $10,000. Although the deadline for submitting the FBAR Report to the United States Department of Treasury is June 30^th, some of the information contained in the report is required for the tax return due two weeks earlier. Ownership in foreign businesses and holdings of other foreign assets must be itemized on the FBAR Report while Income from these same sources is required for the income tax return.

If you are a United States citizen residing abroad, our tax settlement professionals can help you evaluate and meet your tax filing requirements. The CPAs and Enrolled Agents at Professional Tax Resolution are experts in the area of foreign tax compliance and can help you evaluate your foreign income reporting requirements. Our experienced tax settlement professionals offer a free, no obligation consultation to answer any tax question or to discuss tax resolution optionsfor a tax debt you are unable to pay. For more information about out full range of tax services, call us at 877.889.6527 or visit our website at www.professionaltaxresolution.com.

Government Employees Have Delinquent Tax Balances

Posted on June 2, 2014 by Kursti Nakagawa

Delinquent Taxes and Government Employees

Government Employees Have Delinquent Tax Balances – Various government workers have been in the news recently for their delinquent taxes. One article reported that over 1100 IRS employees who owed back taxes and had other tax related problems had, in fact, received bonuses. Another recent report divulged that, as of September 2013, various federal government employees and government retirees owed over three million dollars in unpaid taxes. In a nutshell, it appears that government employees are no different than the general population of taxpayers. Some do not pay their tax bills.

A recent audit of the IRS revealed that over 1000 IRS employees who were in violation of one or more of the tax guidelines set by the very agency they work had received bonus pay in spite of their noncompliance. The Treasury General for Tax Administration reported that the IRS employees who had received bonus compensation had various tax violations including back tax balances, the underreporting of income and late tax payments. While the IRS is not currently required to withhold bonuses for tax law noncompliance, it has said that it will work toward changing this policy based on the recommendations of the recent audit. In a recent statement, IRS officials said they “recognize the need for proper personnel policies” and will “strive to protect the integrity of the tax system.”

Another recent report discussed the delinquent taxes owed by government employees in general. According to his study, members of Congress have a higher percentage of delinquent taxpayers than the IRS. While the Treasury Department, which includes the IRS, has a 1.2% rate of noncompliance, the percentages are 3.24% for Senators and 4.87% for members of the House of Representatives. Results of this same study showed that the departments with the highest noncompliance rates were the Department of Veterans’ Affairs and the Department of Housing and Urban Development with rates of 4.38% and 5.29 % respectively. Off the large governmental agencies, the worst offenders were the Smithsonian Institution, the Government Printing Office and the Court Services and Offender Services Agency, all with tax noncompliance rates in excess of six percent. According to the IRS data released in this recent study, approximately 3.3% of federal government employees and federal government retirees owe back taxes.

If you have a delinquent tax bill, our tax settlement professionals are happy to discuss your tax resolution options free of charge. For more information about our tax settlement services, call us at 877.889.6527 or visit our website at www.professionaltaxresolution.com. Our experienced CPAs and Enrolled Agents have a thorough understanding of tax law together with the experience to know which tax settlement option will be the best fit for your specific tax delinquency.

The Tax Debt Debate

Posted on May 22, 2014 by Kursti Nakagawa

The Tax Debt Debate

The Tax Debt Debate – One interesting provision of the Tax Extenders Bill that is currently stalled in the United States Senate is the privatization of tax debt collection activities. The Tax Extenders Bill, which is unlikely to be voted on again this month, contains a clause that suggests turning delinquent tax accounts over to private collection agencies. This idea, which has actually been tried before, is the subject of much debate. While proponents believe that private companies specializing in debt collection will be better equipped to collect outstanding tax liabilities, opponents believe that their tactics may be unfair, especially to those taxpayers who are unable to pay their tax debt.

The tax gap, which is the difference between the dollar amount of taxes owed to the IRS and the amount they actually collect, has always been there. In fact, the data shows that it has remained fairly constant over recent years when measured according to the taxpayer compliance rate. Two years ago, the IRS released data comparing the 2006 tax gap to that of 2001. Although the gross tax gap increased over the five year period, from $345 billion to $450 billion, most of that amount was due to an increase in total tax liabilities. The compliance rate remained fairly constant at about 83%. Amounts collected following enforced collection activities by the IRS increased that rate to approximately 86% for both years. The IRS report noted that the compliance rate was highest where there was third party reporting or withholding. As expected, the percentage was much lower in areas such as retail business income where there is little or no information reporting.

In spite of the fact that total dollar amount of the tax gap is significant, many believe that turning the collection of tax debt over to private collection agencies is not the answer. After analyzing tax debt collection activities by the IRS for 2013, National Taxpayer Advocate Nina Olsen released a statement saying that 79% of the delinquent taxes were owed by taxpayers with incomes below the poverty line. Ms. Olsen maintains that these tax debts are not collectible by any method. She further asserts that turning them over to private collections agencies might jeopardize taxpayer rights and still not achieve the intended result of increasing tax revenue. IRS Commissioner John Koskinen is also opposed to the privatized collection of tax debt but cites a different reason. He points out that the last time this method was tried, it did not accomplish its objective. While $98 billion in back taxes was collected by private agencies, it cost more than that amount to administer the collection program and pay the agencies for their efforts!

If you have an outstanding tax liability, contact out tax settlement professionals today to discuss your tax debt resolution options. For more information about our tax settlement services, visit us today at www.professionaltaxresolution.com or call us at 877.889.6527 for a free consultation. We resolve tax problems all day, every day and have helped many satisfied clients successfully resolve their tax debt issues.