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.

Why You Should File Your Taxes

Posted on March 16, 2015 by Kursti Nakagawa

Why You Should File Your Taxes by April 15

Taxes Due April 15

April 15th is an important filing deadline for individual taxpayers. If the Internal Revenue Service does not receive either a completed tax return or an application for a six-month tax extension by this date, they will automatically assess a failure-to-file penalty. In addition, they will begin to assess a failure-to-pay penalty on any tax amounts owed. Although the failure-to-file penalty can be diverted by applying for a six month tax extension, late payment and interest assessments will automatically begin to accrue as of the April 15th tax deadline regardless of whether a tax extension has been filed.

Because the penalties and interest described above are compounded over time, the financial consequences of failing to file tax returns and failing to pay tax amounts owed can be significant. The failure-to-file penalty is assessed at a rate of 5% of the back tax balance for each month or partial month that a return is not filed up to a maximum of 25% of the outstanding tax liability shown on the return. A minimum penalty of either $100 or the entire amount of the back tax balance is assessed for any return that is not filed within 60 days of the filing deadline. In addition, a failure-to-pay penalty is assessed at a rate of 0.5% per month for each month or partial month following the filing deadline where a back tax balance remains unpaid. This rate is reduced it 0.25% if a taxpayer is making payments according to the terms of an official installment agreement and is excused altogether if a tax extension was filed and 90% of the back tax balance was paid on or before the original filing deadline. The failure-to-pay penalty is assessed for a maximum or 50 months, thus capping out at maximum of 25% of the original tax liability.

The lesson to be learned from all of this is that the filing of tax returns and the paying tax bills should be taken seriously. As is pointed out above, the financial consequences of not doing so can be significant. The failure-to-file penalty can be avoided by simply filing a tax return by the filing deadline even in the case where funds are not available to pay the tax amounts due. Outside of this, a taxpayer should avoid the compounding of penalties and interest by being proactive in coming up with a plan to pay any outstanding tax liability. To this end, the IRS is willing to work with delinquent taxpayers to come up with payment plans they can afford. Once a payment amount is determined based on the size of the back tax balance and the taxpayer’s financial situation, the taxpayer simply pays this monthly installment amount until the back tax balance is paid off. This is a far better solution than ignoring a tax bill and then having to pay the back taxes plus an additional 25% of the original tax amount owed.

Offer in Compromise Saves Client Over $95,000!

Posted on February 27, 2015 by Kursti Nakagawa

Offer in Compromise Saves Client Over $95,000!

The Offer in Compromise is an excellent tax settlement option for a delinquent taxpayer who meets the specific qualifying criteria set forth by the IRS. Such was the case for Professional Tax Resolution client, Mr. F. Not only did he have an outstanding tax liability, but the specific set of financial circumstances establishing his inability to pay the full amount of his back tax balance fell within the Offer in Compromise parameters set by the IRS.

Mr. F, a Hollywood voice over actor, was experiencing some health issues that were having a negative effect on his ability to earn a livelihood. As a result of his constricted financial situation, he was unable to meet his monthly financial responsibilities and began ignoring his income tax obligations as well.

By the time he contacted Professional Tax Resolution, he had failed to file income tax returns for the previous several years and had accumulated a back tax balance of over $101,000! At a loss as to how to climb out of this deep financial hole, he was hopeful that a tax settlement professional could provide him with a viable solution. Our tax resolution team immediately set to work filing Mr. F’s back tax returns and doing a complete analysis of his financial situation. Once we had an accurate accounting of the amount of his tax debt as well as his ability to pay it, we determined that the best tax settlement option for his financial situation was an IRS Offer in Compromise. Following this conclusion, our tax settlement professionals completed and submitted an Offer in Compromise application, proposing a settlement amount that we felt would be accepted by the IRS. As is always the case, the amount was calculated based on the amount of Mr. F’s back tax balance together with his specific set of financial circumstances. After a short period of negotiation, the IRS accepted Mr. F’s proposal, resolving his $101,000 back tax balance for only $3600.

This settlement amount represents just little over 3.5 % of his original tax liability! As exemplified by the case of Mr. F, the tax specialists at Professional Tax Resolution will always begin the tax settlement process with an accurate determination of the client’s back tax balance together with a thorough analysis their financial situation. Following that, they will select the best tax settlement option available and follow the tax resolution process through to a final solution. All the while, they will communicate with the IRS on the client’s behalf and protect their property and accounts from IRS levies and liens.

Choose Your Tax Preparer Wisely

Posted on February 23, 2015 by Kursti Nakagawa

How To Choose a Tax Preparer

Choose Your Tax Preparer Wisely

Choose Your Tax Preparer Wisely: With over half of all taxpayers enlisting the services of a tax preparer, tax preparation has become a major industry. This being the case, the selection of a reputable tax preparer is a task at hand for many at this time of year. Although the services of a tax preparer can be an invaluable asset in saving tax dollars as well as meeting tax deadlines and compliance requirements, choosing one that is both competent and ethical and is often a difficult process.

When choosing a tax preparer, it is important to select a firm or an individual that has an established licensing history and a verifiable physical address. The absence of either of these could mean that the firm may not be around to answer questions and follow up if there are problems once the return has been filed. In terms of licensing it is important to use a preparer with a Preparer Tax Identification Number (PTIN). Since Certified Public Accountants and Enrolled Agents are the only preparers who can represent their clients before the IRS in all tax matters, it may be advisable to seek a preparer with one of these additional certifications if the return is difficult or presents unusual problems. It is also prudent to check out available reviews and ratings of any tax preparer under consideration in addition to making sure there are no registered complaints against that firm or individual.

In light of the points discussed in the previous paragraph, the following is a list of some things to avoid when selecting a tax preparer:

 Avoid any tax preparer who does not have a valid 2015 PTIN. Preparer Tax Identification Numbers are renewable each year so any reputable tax preparer should have a current PTIN number.

 Avoid tax preparers who want you to sign a blank return or do not sign the return themselves.

 Avoid tax preparers who ask you to mail in a paper return rather than filing your return electronically. Most preparers are required to file electronically so a request that you do otherwise should be a red flag.

 Avoid a tax preparer who suggests that you deposit a tax refund in to any account other than your own. This practice is not allowed by the Internal Revenue Service.

 Avoid tax preparers who base their fees on a percentage of the refund amount rather than on the type and complexity of the return.

 Avoid tax preparers who make promises that have no basis in reality such as guaranteeing a high refund without examining tax documents or promising a refund by a certain date.

In summary, the process of selecting a tax preparer should focus on choosing an established individual or tax preparation firm with good reviews and ratings and a verifiable licensing history. It should avoid those who do not meet these qualifications and make extravagant promises that they are unlikely to keep. While a competent tax preparer can be a great asset, choosing the wrong one can be worse than not having one at all!