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.

Celebrities Who Ignored Tax Deadlines

Posted on March 17, 2014 by Kursti Nakagawa

Celebrities Who Ignored Tax Deadlines

Celebrities who Ignored Tax Deadlines – Ignoring tax deadlines and failing to pay outstanding tax balances can have severe consequences. Interest and penalties accumulate over time and can amount to a significant financial burden. In addition, the IRS has the authority to use more aggressive collection techniques such as tax levies, tax liens and wage garnishments when outstanding tax balances are not paid in full. The following examples illustrate the consequences suffered by some well known individuals who ignored their tax responsibilities.

This celebrity was slapped with a $6.2 million tax lien.

Although actor Nicolas Cage earned over $40 million in 2009, the IRS slapped him with a $6.2 million tax lien in that same year. He was apparently spending more money than he earned on such luxury items as yachts, homes, art, jewelry and vintage cars. It has recently been reported that Cage is trying to repair his finances and pay his tax debt by selling some of his properties as well as an entire island in the Bahamas!

This celebrity was arrested for state income tax evasion.

In December of 2012, actor Stephen Baldwin, the youngest of the Baldwin brothers, was arrested for state income tax evasion. The charge was due to the fact that he owed the State of New York over $350,000 in back taxes. This past March, he pled guilty to felony charges and paid $100,000 of the amount he owed. He must pay the balance of his past due tax liability by the end of this month in order to avoid jail time.

This celebrity accumulated a back tax balance of over $400,000.

When actor Gary Busey filed for bankruptcy protection in December of 2012, he was able to discharge more than $50,000 in liabilities. However, because tax debt is not covered by bankruptcy protection, he was left with an outstanding tax debt of $451,000. Time will tell whether Busey will suffer legal consequences or be able to negotiate a tax settlement agreement with the IRS to pay his back tax bill.

This celebrity is over $10 million in debt, most of it due to back taxes.

When singer Dionne Warwick filed for bankruptcy protection this past March, she listed only $25,000 in assets and over $10 million dollars of debt. Since most of this debt is apparently due to back taxes which are not relieved with a bankruptcy petition, she still faces an uphill financial battle. However, she is currently living in Brazil and working to pay her tax debt. Since she has an earning capacity of over $20,000 a month, her situation may not be as dire as some others who have monumental tax liabilities.

This celebrity was hit with multiple tax liens.

The IRS has filed multiple tax liens against R&B singer Toni Braxton in an attempt to collect almost $400,000 in back taxes owed for tax years 2008 and 2009. Although Braxton has filed for bankruptcy protection twice in recent years, the filings did not eliminate her tax debt. To date, there is no report that Braxton has resolved her tax problem.

This celebrity owes more than $1.5 million in unpaid taxes.

A tax lien was originally filed against O.J. Simpson in 1999 in an attempt to collect more than $1.5 million in delinquent taxes. However, due to the fact that Simpson is currently serving a 33-year prison sentence in a California correctional facility, it is unlikely that he will be able to resolve his tax bill!

As the above examples illustrate, it is never a good idea to ignore your tax responsibilities. The IRS is a powerful collection agency and will take whatever steps are necessary steps to collect the money they are owed. As the above examples illustrate, the worst choice a delinquent taxpayer can make is to ignore outstanding tax liabilities and hope they will go away. When the necessary funds are not available to pay a tax balance in full, it is advisable for a taxpayer to contact the IRS and attempt to take advantage of one of the many tax settlement options they offer.

If you have a back tax balance that you are unable to pay, our tax settlement professionals can help you determine the best course of action to resolve it. For more information about our services, visit us today at www.professionaltaxresolution.com. With over 16 years of 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. Contact us by phone at (877)-889-6527 or by email at info@protaxres.com to receive a free, no obligation consultation.

Tax Time – A Good Time to Resolve Back Tax Balances

Posted on February 13, 2014 by Kursti Nakagawa

Tax Time – A Good Time to Resolve Back Tax Balances

Tax Time – A Good Time to Resolve Back Tax Balances: Tax time is as good a time as any to resolve back taxes issues. Paying or settling back tax balances at the same time as filing current returns starts the new tax year off with a clean slate and avoids the escalating consequences that back tax balances can cause. The worst choice a taxpayer can make is to ignore outstanding tax liabilities and hope they will vanish. As always, the best course of action is to face the problem head on and pay the balance in full. If the necessary resources are lacking, as is often the case, there are numerous tax settlement options available. That being said, tax time is now and now is the best time to resolve back tax balances!

The consequences of ignoring back taxes escalate over time and can be severe. Penalties for failure to pay back taxes are assessed at a rate of 0.25% to 1% of the tax amount due for each month or partial that tax balances remain unpaid. These penalties continue to accumulate until they reach a maximum of 25% of the initial tax amount owed. In addition, since the IRS treats a back tax balance as a loan, they charge interest on the overdue amount at a rate that varies with the federal short term interest rate. If penalty and interest charges are not enough motivation to resolve back tax balances, the IRS or State Tax Agency may impose some type of enforced collection action. These aggressive collection activities include tax liens, tax levies and wage garnishments.

The best way to resolve an existing back tax liability is to pay the balance in full. If sufficient funds are not readily available, the taxpayer might consider putting the back tax amount on a credit card, withdrawing from a retirement account or taking out a bank loan. Short term extensions are available for taxpayers who will have the resources to pay their tax bill within 120 days. Additionally, there are numerous tax settlement options available for those who cannot make full payment either immediately or in the short term. These options include Installment Agreements, Partial Payment Installment Agreements and Offers in Compromise, among other things. Aside from these tax settlement options, penalty waivers are sometimes available for delinquent taxpayers who were unable to meet their tax obligations due to circumstances that were beyond their control.

The best course of action for a taxpayer who has a back tax balance may be to contact a certified tax professional for help in determining the best way to resolve the outstanding liability. Although numerous tax settlement alternatives are available, the qualifying criteria are specific and can be confusing. In addition the application procedures are complex and time consuming. That being said, it may take a professional with a thorough knowledge of the requirements of the various tax settlement alternatives to effectively maneuver the system.

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.

Beware of IRS Penalties at Tax Time!

Posted on February 11, 2014 by Kursti Nakagawa

Beware of IRS Penalties at Tax Time!

Beware of IRS Penalties at Tax Time! Tax time is a good time for taxpayers to be reminded of some of the penalties that can be assessed by the IRS and State Tax Agencies for failure to comply with set deadlines for the filing of tax returns and the payment of tax amounts due. Since penalty amounts accumulate over time and are usually combined with interest charges on any outstanding tax balances, they can result in significant increases to the amounts owed to the collecting tax agencies.

Outlined below are some of the penalties that come into play at this time of year:

Penalty for a Bounced Check

The penalty for a disallowed check or money order made payable to the United States Treasury is 2% of the amount of the check for checks of $1,250 or more. If the amount of the check is under $1,250, the penalty is $25 or the full amount of the check, whichever is less. The penalty fees for disallowed payments cover electronic payments as well as paper checks.

Late Filing Penalty

The penalty for the late filing of a tax return is 5% of the unpaid tax balance for each month or partial month that the return is late up to a maximum penalty of 25 %. A minimum penalty of $100 or 100% of the tax due, whichever is less is imposed for any tax return that is more than 60 days overdue.

Late Payment Penalty

The penalty for failing to pay tax amounts due is assessed at a rate of 0.5% for each month or partial month that the tax balance remains unpaid after the filing deadline. This percentage is reduced to 0.25 % for any taxpayer who has entered into a valid installment agreement with the collecting tax agency. Taxpayers who have filed for a 6 month extension and have paid at least 90% of the tax amount due at the time the extension was filed are exempt from paying a late payment penalty provided they pay the balance of any taxes owed at the time the extended return is filed.

The assessment of a tax penalty must be officially communicated to the taxpayer by means of an IRS Letter, an IRS Notice or a similar type of written notification from one of the State Tax Agencies. Each written penalty notice must include an explanation of why the penalty is being assessed and how the amount of the penalty was calculated. Upon receiving an official notice informing you of the assessment of a tax penalty, the best course of action is always to address the issue immediately before tax balances accumulate beyond what they already are.

If you have received a penalty notice or have 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.

Foreign Banks Take Advantage of Tax Amnesty Offer

Posted on January 27, 2014 by Kursti Nakagawa

Foreign Banks Take Advantage of Tax Amnesty Offer

Foreign Banks Take Advantage of Tax Amnesty Offer: In its latest attempt to tackle the problem of offshore tax evasion, the United States Department of Justice offered Swiss banks that are not currently under criminal investigation the chance to apply for tax amnesty. Banks that chose to accept the offer were given until December 31^st to turn over information on any undeclared foreign accounts and to provide information as to how they helped United States citizens hide their foreign assets. A recent report indicated that over one third of the 300 banks that were extended this recent amnesty option have accepted the terms and agreed to cooperate.

Under the terms of this latest tax amnesty program, foreign banks must pay penalties equal to a certain percentage of the value of their undisclosed American accounts in order to avoid prosecution. This percentage is determined by when the undisclosed accounts were opened and is highest for those accounts opened after the 2009 prosecution of UBS. The fines range from 20 percent of the value of undisclosed assets for those accounts opened before August, 2008 up to 50 % for those opened after February, 2009. While the Swiss government is critical of these steeply escalating percentages, it has apparently encouraged banks to cooperate.

The crackdown on offshore tax evasion increased in intensity after the 2009 conviction of UBS, the largest Swiss bank, for hiding over $20 billion dollars in United States assets. As part of this conviction, UBS paid a penalty of over $700 million and turned over in excess of 4000 foreign accounts. In addition, 100 United States taxpayers and financial advisers were criminally prosecuted while over 30,000 others avoided prosecution by disclosing their offshore accounts and paying the back taxes and penalties associated with the disclosures. Since that time, the Unites States Department of Justice has allocated more and more resources to identifying offshore assets and penalizing those institutions and individuals who attempt to hide them. This latest tax amnesty offer is part of that ongoing effort.

If you have questions about the reporting of assets held in foreign accounts or about a tax debt you are unable to pay, our tax settlement professionals are happy to discuss your situation free of charge. For more information about our services, call us today at 877.889.6527 or visit us at www.professionaltaxresolution.com. With over 16 years in the business of resolving tax problems, we have a thorough understanding of both domestic and foreign tax law tax together with the experience to know how to apply that knowledge to your specific financial situation.