Tax Penalties to Increase in 2017

Posted on September 20, 2016 by Kursti Nakagawa

Tax Penalties Set to Increase in 2017

According to the annual Bloomberg BNA report of projected tax rates, tax penalties are set to increase in 2017. The projected tax penalty increases will be applied pretty much across the board. They include penalties such as the Failure to File Penalty and the Failure to Pay Penalty imposed on individual and business taxpayers as well as significant increases in penalty assessments for tax preparers. Although the adjustments represent the expected annual increases due to inflation, they are also a result of the heightened focus by the IRS on collecting back taxes as well as tightening up the regulations governing tax preparation.

The Failure to File Penalty is one of those sharply affected by the 2017 tax penalty increases. Over the last few years this particular penalty has increased from a maximum of 25% of the tax amount owed to a maximum of 100% for 2017! Previously, a taxpayer who did not file a tax return was assessed a penalty amount of five percent of the tax amount owed for each month that the return was delinquent up to a maximum of 25% of the back tax balance. For 2017, any taxpayer who has not filed a tax return within 60 days of the filing deadline will be assessed a Failure to File Penalty of not less than $210 or 100% of the tax balance owed. The Failure to Pay Penalty is expected to hold at 0.5 % of the unpaid tax balance to be assessed each month beginning from the original due date of the return until the tax balance is paid the in full or is resolved through the negotiation of a tax settlement agreement. Likewise, the 2016 back tax balance of $50,000 used to define a “seriously delinquent” taxpayer is expected remain unchanged for 2017.

Another area which will see tax penalty increases in 2017 is that of penalties levied against tax preparers. These include penalties for various errors and omissions including Failure to Sign Return, Failure to Provide Taxpayer Identification Number, Failure to Provide Copy of Return to Taxpayer, Failure to File Correct Information Returns and Failure to Be Diligent in Determining the Child Tax Credit, the Earned Income Tax Credit and the American Opportunity Tax Credit. The maximum penalty for each of these errors will increase to $25,500 for 2017, up from a maximum of $25,000 in 2016. This represents an increase of 2%. Partnerships and S-Corporations will also see tax penalty increases in 2017. As of the first of next year, each partner or shareholder will be fined $200 for failure to file a corporate tax return or failure to file the correct information returns.

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.

IRS Targets International Businesses

Posted on August 10, 2016 by Kursti Nakagawa

IRS Targets International Businesses

Over the last few years, the IRS has faced many dramatic cutbacks which have caused them to decrease their services and drastically reduce the actual number of IRS employees. However, in spite of the downsizing, the agency is determined to collect the money they are owed, especially that owed by larger taxpayers. They have responded to slashes in the number of staff members by focusing most of their efforts and resources on going after the big guns while sweeping up any other delinquent IRS taxpayers they can find along the way. Using this creative approach, they hope to recover a large portion of the millions and billions of dollars that are dishonestly and fraudulently withheld from the IRS.

One of the changes recently announced by the IRS in response to the cutbacks is a focus on auditing businesses in the international division, which are some of the nation's largest taxpayers. This is part of their overall plan to spend most of their time and energy focusing on the larger tax issues which will potentially bring in more tax dollars. The agency is currently keeping their eye on such questionable international business transactions as the basket option, which is a cleverly designed tax loophole whereby foreign banks are enlisted by hedge funds for the purpose of converting short term capital gains to long term gains in order to avoid the payment of higher short term capital gains rates. Since the short term capital gains rate is 39.6% compared to 20% for long term gains, practices such as basket option contracts result in a significant loss of tax revenue for the IRS. Therefore, such practices as this as well as other items on the IRS list referred to as the “dirty dozen” are being targeted by the IRS.

This is all part of a new plan by the IRS to kick into high gear programs designed to get the most money possible from delinquent taxpayers. A key component of this plan is improving the audit process. In the case of auditing companies involved in international transactions, the IRS must obtain enough detailed information and data to build a strong case against the taxpayer. The IRS agents going after these particular businesses have gone through a type of advanced IRS training that instructs them in how to obtain this necessary documentation. These new examination agents will conduct and resolve audits on a national level which is an overall change to IRS system and one which will affect any taxpayer selected for an IRS audit. As a result, taxpayers, especially those who own large companies or are operating internationally, would be well advised to stay on their toes. This means keeping all business related documentation and operating under the advice of an attorney or other tax professional who is experienced in the area of international tax law. The IRS is hunkering down on the big players that owe them money!

What Happens If You Can’t Pay Your Taxes?

Posted on April 26, 2016 by Kursti Nakagawa

What Happens If You Can’t Pay Your Taxes?

What Happens if You Can’t Pay Your Taxes?

What happens if you owe tax money to the IRS and you cannot afford to pay it? Most importantly, do not ignore the IRS. They have a lot of information on you and are not going to forget about the money that is owed. To prevent the IRS from initiating aggressive collection techniques such as freezing your bank accounts and garnishing your wages, it best to contact them promptly. A tax problem will not go away. On the contrary, it will only compound and increase over time until it is resolved. There are several options available for resolving a tax debt. Some of these options can be initiated directly with the IRS. However, if your tax problem is complicated, it may be in your best interest to hire a qualified tax resolution specialist to assist you. Here are some steps to take if you owe back taxes and do not have the necessary funds to pay the balance in full:

File Your Taxes on Time (even if you don’t have the funds to pay the balance due): No matter what your financial situation, stick with the same process each tax year and submit your tax return by the filing deadline. Whether you decide to use the services of a CPA/accounting firm or a seasonal tax company or file on-line yourself via tax prep software, always send in your return on time or file for a tax extension. If you fail to do this, you will be assessed a failure to file penalty which will begin to accrue the day after tax day. This penalty will be levied in addition to interest and possible failure to pay penalties on any taxes you may owe. These penalties and interest charges will add up very quickly over time so it is always advisable to avoid the late filing penalty even if your do not have sufficient funds to pay the tax balances owed. Okay, this is good information, but what if you already owe the IRS money?

Set up a Payment Plan: If you owe back taxes, it is best contact the IRS immediately.The IRS would rather work with people who acknowledge owing back taxes rather than chasing around after them around to collect the outstanding tax liabilities. There are several types of installment plans that can be set up to pay off a tax bill over time. To review theses plans as well as other options available for settling a back tax balance, see the following IRS link: https://www.irs.gov/Businesses/Small-Businesses- &-Self-Employed/Filing-Past- Due-Tax- Returns . If this is your first time failing to pay your taxes on time, the IRS may be lenient and waive the penalty. See the following IRS link for information on penalty abatements: https://www.irs.gov/Businesses/Small-Businesses-&-Self- Employed/Penalty-Relief- Due-to- First-Time- Penalty-Abatement- or-Other-Administrative-Waiver.

Seek a qualified CPA or a Tax Resolution Specialist: If your tax problem is too big or too complex for you to solve on your own, a CPA or a qualified tax resolution specialist will be able help you explore your tax settlement options. Such an individual should be able to look at your situation to see which settlement options will work best for your specific set of circumstances. In addition, CPAs and Enrolled Agents have the power to negotiate directly with the IRS on your behalf in order to reach the best settlement agreement possible. Once a tax settlement plan has been set up, it is important that the payments are made according to the payment schedule and that taxes are filed on time each year. Late payments or failing to file tax returns by the filing deadlines will normally negate a previously negotiated tax settlement agreement. Simply make it a habit!

Tax Debt May Result in Loss of Passport

Posted on February 29, 2016 by Kursti Nakagawa

Tax Debt May Result in Loss of Passport

One of the numerous bills passed by Congress toward the end of last year was the Fast Act (Fixing America’s Surface Transportation Act). Executed on December 5, 2015, the main focal points of the bill are improving the county’s transportation infrastructure, strengthening public transportation and improving highway safety. However, in addition to the Fast Act’s focus on these transportation related issues, it contains an important line item which allows the State Department to go after United States citizens who owe back taxes by interrupting their use of a passport. The bill allows the government to refuse to issue a passport, fail to renew a passport or revoke a current passport if a taxpayer owes back taxes in excess of a certain threshold amount. This provision is particularly significant because, for the first time, it allows the IRS to share information with the State Department.

The IRS has been aggressively trying to collect back taxes for the past several years. However, they have recently had to scale back on the number of employees devoted to tax collection in order to deal with such pressing issues such as tax fraud, identity theft and tax scams. In light of this employee shortage, the Fast Act takes a step in the direction of collecting back taxes by interfacing with the State Department. It declares that any United States taxpayer who owes $50,000 or more in taxes, interest and penalties is considered to be in “seriously delinquent debt.” Once this designation has been established, the bill allows the IRS to turn to the Secretary of State to deny a passport when one is about to be issued or renewed by such an individual. Because a passport is a strong representation of freedom for any U.S. citizen, the new bill makes a powerful statement about the government’s focus on collecting delinquent tax payments.

If you are a taxpayer who falls into delinquent taxpayer category described above, it may well be advisable for you to contact a competent tax settlement professional to investigate your tax settlement options. Among other alternatives, these options include an IRS Offer in Compromise or IRS Installment Agreement. While a traditional Installment Agreement simply makes payment of a tax debt more manageable by setting up a payment plan, both the Offer and Compromise and the Partial Payment Installment Agreement settle the debt for less than the full amount owed. An additional option is to request a Collection Due Process Hearing. Once a taxpayer and the IRS have agreed upon a method for paying the back tax balance, the Secretary of State will go through the motions of removing the hold on the taxpayer’s passport. Similar to the IRS revoking a lien or a levy, the Secretary of State will deem the taxpayer’s current passport valid or issue a release allowing a passport to be renewed or a new one to be issued.

Franchise Tax Board Assessment Stopped

Posted on August 26, 2015 by Kursti Nakagawa

Franchise Tax Board Assessment Stopped

Just one month after finalizing an Offer in Compromise with the Internal Revenue Service, Mr. C contacted Professional Tax Resolution with another tax settlement issue. Having successfully settled his federal income tax debt for less than 20% of the initial amount owed, he now needed our services to help with resolving an outstanding tax liability with the State of California. Just prior to contacting our firm for the second time, he had received and official notice from the California Franchise Tax Board informing him that he owed a back tax amount of 80K for tax year 2005. This amount included both penalties and interest that had been compounding over time.

Mr. C was both confused and upset when he received the tax delinquency notice from the California Franchise Tax Board. Having just settled his federal tax debt for this same year, he was taken by surprise when he received a notice from the state informing him that he still had an outstanding tax liability with them. A member of our staff quickly reviewed the notice and realized the assessment was based on the results of IRS audit. After ruling out the possibilities of fighting the audit based on proof of expenses or of submitting an Offer in Compromise proposal with the state, our staff decided to match the state’s assessment to the Internal Revenue Service transcripts. It was this match that provided the solution to Mr. C’s back tax issue with the California Franchise Tax Board.

We quickly came to realize the Franchise Tax Board was over-assessing Mr. C. Not only was their assessment based on a higher income then the IRS transcripts reported, but it incorrectly included taxes on income that was produced outside the state. In response, our professionals quickly prepared a letter of protest informing the Franchise Tax Board of the amount of income that was not produced in California and recalculating the tax amount based on the IRS transcripts. After one month and a close review of our protest, the Franchise Tax Board recalculated their assessment based on the correct income amount and came to the conclusion that our client did not owe any additional tax. The end result was that the case was settled and closed with the most favorable outcome possible. Not only did M. C walk away without paying one dime in back taxes, but the Franchise Tax Board actually owed him money!