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Consider Carrying Back a Net Operating Loss as a Tax Settlement Tool

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The Net Operating Loss Carry Back is a tax relief option that allows a taxpayer to reduce an existing tax liability by applying net operating losses for the current fiscal year against gains from previous years. In light of the recent economic downturn, is not uncommon for allowable deductions in any given year to exceed gross income, thus resulting in an operating loss. By the same token, it is a fairly common occurrence in the current economic environment for a taxpayer to have paid taxes on substantial net income in past years and yet have incurred financial losses for the current year. This is the set of financial circumstances for which the Net Operating Loss Carry Back provision was designed.

The Net Operating Loss Carry Back is dissimilar to several of the other tax settlement options offered by the IRS in that it is a tax relief alternative that is available to any taxpayer, regardless of their financial situation. Unlike the Offer in Compromise and the Partial Payment Installment Agreement, there are no specific qualifying criteria. Because of this difference, it is always advantageous to use the Net Operating Loss Carry Back option whenever the financial circumstances are such that there has been a financial loss in any given year following gains in previous years. In recognition of the current economic climate, the IRS has made the use of this carry back option even more attractive by instituting steps to accelerate the payment of any refunds generated by offsetting a prior year’s tax liability. For certain specific situations, the IRS has also extended the time period over which that loss can be offset.

Of course the use of Net Operating Loss Carry Back is subject to the same scrutiny as that of a regularly filed tax return. When this offset is requested, IRS will look carefully at the current year’s tax return together with returns that were filed during the carry back period. Great care should be exercised to make sure all of these returns have been filed correctly and any necessary amendments to previous returns have been submitted according to established IRS guidelines. As with any of the tax settlement options, enlisting the help of a qualified tax specialist to assist in this process might very well prove to be a worthwhile investment. Although the IRS has made changes to the Net Operating Loss Carry Back option in order better accommodate the needs of taxpayers in the current economic climate, it nevertheless has not compromised its existing requirements for thoroughness and accuracy.

Visit www.professionaltaxresolution.com for more information about customized tax debt relief assistance. With over 16 years of experience, we have a thorough understanding of tax law together with the experience to know which tax settlement option will best meet the specific needs of each of our clients. Contact us today at (949)-596-4143 or info@protaxres.com to receive a free, no obligation consultation.

2010 Electric Car Credit and Other Tax Incentives

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There are a variety of reasons why taxpayers might find themselves with a significant amount of tax debt. Many individuals have outstanding tax liabilities because they have failed to file income tax returns or report portions of their income. In other situations, taxpayers have filed their returns but have done so incorrectly or relied upon the services of unqualified tax preparers who have made filing errors. At Professional Tax Resolution, our services go beyond those of a traditional tax settlement firm. Our goal is to stop collection activity, resolve any existing tax debt issues, and then work with the client to ensure that a problem situation does not repeat itself.

The government provides various types of tax credits to stimulate demand for certain products and industries. Most recently the IRS and various states have encouraged home sales and the purchase of energy efficient vehicles and appliances through the use of tax credits. While these incentives can provide taxpayers with substantial tax advantages, they can have devastating effects if they are filed incorrectly. It is not uncommon for our firm to meet with a new client who has been in tax compliance in the past but is now faced with a tax debt that is due to the incorrect filing of a tax return or an error in the reporting of a tax credit. If a tax credit is filed incorrectly, the IRS typically will not identify the error and disallow the credit until a year, or possibly two, after the filing of the original tax return. By this time, various types of filing, payment and accuracy related penalties and interest have often been applied to the outstanding tax debt. These assessments can add up to amounts that taxpayers simply are unable to pay.

Last year the IRS published numerous news articles about the fraud and improper filing of the $8,000 First-Time Homebuyer Credit. This year it is publishing similar articles about the misunderstanding and fraud related to the $7,500 electric drive motor vehicle credit. While taxpayers should certainly take advantage of these potentially lucrative tax incentives, they should also take care to make sure that they are in fact eligible for them and that they are properly filed.

Automobile companies are just beginning to mass market electric cars in response to increased consumer demand. This is at least partially a response to the lucrative tax incentives being offered by the Federal Government. President Obama is pushing to have a million electric cars on the road by 2015 and tax incentives are a large part of the strategy designed to make that number a reality. At present a $7,500 tax credit is available to any consumer purchasing an electric drive motor vehicle and additional credits are being offered to anyone who converts an existing gasoline powered automobile to plug-in.

Although the tax breaks may be serving their purpose in increasing demand for electric vehicles, a Treasury Department review revealed that thousands of taxpayers have claimed the credits for vehicles that don’t qualify. In fact, estimates indicate that over 20% of approximately $160 million in electric car tax credits claimed for the first half of 2010 were claimed in error. In response to the Treasury Department’s findings, the Inspector General has made numerous recommendations for recovering the wrongfully-claimed credits and for improving the reporting methods so as to avoid false claims in the future. The IRS has concurred, saying that it has taken “aggressive steps” to safeguard against improper payments as well as to “recapture the credits people erroneously claimed.”

At Professional Tax Resolution, we have the knowledge and experience to ensure that all of our clients’ tax filings are submitted accurately and according to established IRS guidelines. If a tax debt situation already exists, our experienced CPA’s will take the time to thoroughly analyze it in order to bring about resolution using the best tax settlement option available. The bottom line is not to try to handle a complex tax settlement case alone.

Visit www.professionaltaxresolution.com for more information about tax settlement options or contact us today at (949)-596-4143 to receive a free, no obligation consultation.

FAQ about the IRS Notice of Deficiency

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What is an IRS Notice of Deficiency?
A Notice of Deficiency is a formal letter from the IRS informing a taxpayer of a tax deficiency and advising them of their appeal rights with the United States Tax Court. It is required by law and is sent by registered or certified mail to the taxpayer’s last known address. Although a Notice of Deficiency can be issued when no tax return has been filed, it is most often sent when the tax amount shown on a submitted return is less than the actual amount owed according to IRS calculations.

What information is provided by an IRS Notice of Deficiency?
A Notice of Deficiency must include an explanation for the deficiency together with a statement of the tax, interest and penalties that have been assessed. The notice should also include the final date on which the taxpayer can file a petition with the United States Tax Court appealing the assessment. However, it should be noted that failure by the IRS to specify the last day on which to file a petition will not invalidate an otherwise valid deficiency notice if the taxpayer was not prejudiced by the omission.

How does a taxpayer respond to a Notice of Deficiency?
Within 90 days after a Notice of Deficiency is mailed (or within 150 days after mailing if the notice is addressed to a person outside the United States) the taxpayer must pay the assessed amount or file a petition with the Tax Court to contest the liability. Payment of the assessed amount after the deficiency notice is mailed does not deprive the Tax Court of jurisdiction over the deficiency. In addition, discussion of the case with the IRS during the 90 day period does not extend the time period during which a petition can be filed.

What are the consequences if a response is not submitted in a timely manner?
If the taxpayer does not file a Tax Court petition within the required time period, the appeal process is closed and IRS has the authority to collect the tax. Since the Tax Court is the only court that will hear the question of whether a tax liability is really owed, the taxpayer’s only option after the 90 day deadline has passed is to pay the assessed amount in full and then apply for a refund. If a response is not received within 90 days after the issuance of a Notice of Deficiency, the IRS is likely to issue a Notice to Levy. The Notice to Levy allows a 30 day response time, after which a taxpayer’s property may be seized to enforce collection if the assessed tax still has not been paid. The requirement to issue the Notice to Levy and wait 30 days does not apply if the IRS finds that the collection of tax is in jeopardy.

What are the advantages of obtaining the services of an experienced tax professional?
The IRS is authorized to collect taxes and issuing a Notice of Deficiency is the first step in the collection process. Receiving such a notice can be both intimidating and confusing and may make enlisting the help of a qualified tax professional a worthwhile investment. Collection of taxes by the IRS is permitted without proof of the debt so the burden rests with the taxpayer to determine whether the tax amount shown on the Notice of Deficiency is actually owed. Because of the complexities of tax law, accurately making this determination may require someone with both expert knowledge and experience. In addition, obtaining the help of a tax professional will ensure that the response to such a notice meets the IRS requirements and is submitted correctly, thus avoiding unpleasant consequences down the road.

If you have received a letter from the IRS such as a Notice of Deficiency or Notice to Levy or are threatened with a tax lien or wage garnishment, we can help stop the immediate collection action and help you work toward resolving your tax debt. Contact us today at (949) 596-4143 or info@protaxres.com to receive a free, no obligation consultation.

IRS Warning About Companies That Promise To Reduce Tax Debt – For a Large Fee

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The IRS Wants You to Check Carefully Before Applying for an Offer in Compromise

The Internal Revenue Service has issued a consumer alert advising taxpayers to beware of tax settlement agencies that claim they can settle an outstanding tax debt for a small fraction of the amount owed through the through filing an application for an offer in compromise. While it is true that the IRS has the authority to settle federal tax liabilities for less than the full amount of the tax debt, the offer in compromise serves an important purpose for only a very select group of taxpayers. Commissioner Mark W. Everson recently warned consumers that the IRS is “increasingly concerned about unscrupulous promoters charging excessive fees to taxpayers who have no chance of meeting the program’s requirements.” He urged taxpayers with unresolved tax debt issues not to be fooled by high priced promises.

The bottom line is that if a tax settlement promise seems too easy and too good to be true, then it probably is. There are a few large marketing companies in the United States that are trying to take advantage of taxpayers who are faced with the very real, and very scary prospects of tax liens and wage garnishments. By preying upon those taxpayers in need through advertisements that promise enormous tax relief, they are not only misleading the public, but they end up costing those very vulnerable individuals time and money without ever really addressing the specifics of their tax debt. This is not to say that all tax settlement companies are unscrupulous, but the issue has become rampant enough that the IRS felt they needed to warn the public about this alarming practice.

The truth is that an offer in compromise will usually be considered only after other payment options have been exhausted. If a taxpayer is unable to pay their tax debt in full, there are other settlement options, such as monthly installment agreements, that must be explored before an offer in compromise can even be submitted. In actuality, tax settlements for very low proportions of tax debt are far more infrequent than the advertisements lead the consumer to believe and 100% tax relief is even less common.

Complete information on the tax collection process and various tax settlement and payment options is available on the IRS website (www.irs.gov). By reading through the agreement request qualifications provided on the site, the taxpayer may be able to determine if they qualify for a particular tax settlement option or payment plan. The website itself provides detailed instructions for submitting an offer in compromise and also includes all of the necessary financial forms. Of course, the many laws and regulations regarding the offer in compromise as well as other tax settlement options can be overwhelming so obtaining the help of a knowledgeable and qualified professional is often a worthwhile investment.

A qualified certified public accountant is probably the most desirable choice when seeking professional help with a tax debt issue. A CPA is the most likely professional to have a current knowledge of tax law and a thorough understanding of the policies and procedures of the IRS. An individual with this certification will also have the expertise and the experience to determine the true tax debt and to select the best method of tax relief for a specific set of circumstances. In order to locate a CPA in a specific geographical area, a taxpayer should contact the local or state tax professional association. Before actually hiring a CPA, it might also be a good idea to run a background check on the individual and also to verify their current licensure with the state certification agency and the Better Business Bureau. If references or referrals are available, it is a good idea to review these as well.

At Professional Tax Resolution, we welcome your inquiries and questions. We encourage you to read reviews from our clients as well as click our direct link to our rating with the BBB and the state licensure division. To learn more about how we can help you to remove tax liens, stop a wage garnishment, or find tax debt relief, call us today at (949) 596-4143 for your free no obligation consultation.

Another Tax Settlement Option – A Partial Payment Installment Agreement

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Due to the current economic climate, more taxpayers are finding themselves with significant outstanding tax debt. Many taxpayers owe both the Internal Revenue Service and their state (or states) for multiple years. Some taxpayers are simply overwhelmed by the numerous IRS Notices and Letters from the IRS that they receive. In actuality, there are numerous ways to resolve outstanding tax liabilities. However many taxpayers chose the worst choice of action; which is to do nothing. Taxpayers that simply do not respond to attempts to collect outstanding debts debt find themselves the subject of increasingly more aggressive collection efforts by the IRS and State tax agencies. Eventually the IRS and State tax agencies will resort to filing tax levies and tax liens on bank accounts and properties or start a wage garnishment in attempt to collect the outstanding tax debt. Unfortunately due to the amount of time that has passed since the initial notice, many taxpayers are shocked to find that the balances owed may have increased by 50% or more due to the various penalties and interest assessed.

A fairly new and less used IRS tax settlement option is the Partial Payment Installment Agreement. The IRS implemented this additional payment option, on January 17, 2005, specifically for taxpayers who have outstanding federal tax debt. The legislation includes language amending Internal Revenue Code and allows the IRS to enter into installment agreements that result in full or partial payment of the tax debt. What is so different is that prior to enactment of this 2004/2005 legislation, taxpayers who could not fully pay their outstanding tax liabilities could only enter into an installment agreement with the IRS for full payment of the liability. For those with limited monthly cash flow, this left some unable to meet the repayment plan criterion and put them at risk for default.

For those with an inability to pay the full balance of a tax debt, prior to the partial payment installment agreement, the only option to settle a tax debt was the Offer in Compromise. The process of submitting an offer in compromise is generally more involved than the partial payment installment agreement. Of course both tax settlement options are carefully reviewed by the IRS and acceptance is limited to taxpayers that can clearly demonstrate the inability to settle tax liabilities in full.

Taxpayers who are being considered for a partial payment installment agreement to settle an outstanding tax debt must be able to provide complete and accurate financial information that will be carefully reviewed and verified. Taxpayers will also be expected to use equity in assets to reduce or fully pay the amount of the outstanding tax debt liability.

In addition, taxpayers granted partial payment installment agreements will be subject to a complete financial review every two years. As a result of this review, the amount of the installment payments could increase or the agreement could be terminated, if the taxpayer’s financial condition improves.

While the partial payment installment agreement has drawbacks, it does provide taxpayers with another tax settlement option. A qualified tax settlement firm can help you evaluate your specific situation and present you with your options to revolve your outstanding tax debt.

Visit www.professionaltaxresolution.com for more information about the qualifications for tax debt relief through a partial payment installment agreement or other tax settlement options.