Author Archives: Kursti Nakagawa

Know Your Tax Settlement Options

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Know Your Tax Settlement Options

Know Your Tax Settlement Options

Know Your Tax Settlement Options – Concurrently with stepping up their efforts to identify taxpayers who owe back taxes, the IRS has been introducing new tax settlement programs to help these individuals resolve their tax debts. Because ignoring overdue taxes can result in such serious consequences as wage garnishments, tax liens and tax levies, in addition to the accrual of interest and penalties, delinquent taxpayers should be encouraged to resolve their back tax balances as quickly as possible. The worst choice a taxpayer can make is to ignore an outstanding tax liability and allow the consequences imposed by the Internal Revenue Service to escalate!

The following list outlines some of the alternatives available for resolving a back tax balance:

Paying the Balance in Full When sufficient liquid funds are not immediately available to pay the full balance of a tax debt, a delinquent taxpayer can often pay a the entire amount by applying for a bank loan, charging the outstanding tax balance to a credit card or taking money out of a retirement account.

Requesting an Extension A taxpayer who will have the necessary funds to pay a back tax balance within 120 days can request a short term administrative tax extension. Although interest will continued to be charged during the period of the extension, the IRS will not impose penalties or initiate enforced collection activities during this time.

Applying for a Penalty Waiver A Penalty Waiver is tax settlement option offered by the IRS for the purpose of reducing or eliminating previously assessed penalties. Penalty Waivers are normally granted only when a taxpayer is able to show that they were unable to fulfill their tax obligations due to circumstances beyond their control. (winandoffice.com)

Requesting an Installment Agreement An Installment Agreement is a tax settlement option that allows a delinquent taxpayer to pay off a back tax balance in installments when they are unable to pay the full amount at one time.  Such an agreement is approved almost automatically if the total amount of the tax debt is less than $10,000 and the taxpayer is in good standing with the IRS. The length of the repayment period and the size of the installments are generally based on the total amount of the back tax balance together with the taxpayer’s financial situation.

Negotiating a Partial Payment Installment Agreement A Partial Payment Installment Agreement is a tax settlement option whereby the IRS agrees to accept partial payment of an outstanding tax liability. Because the collecting tax agency is agreeing to settle a tax debt for less than the full amount owed, the delinquent taxpayer is required to submit documentation substantiating the fact that they are financially unable to pay the full balance of the debt. The payment terms of a Partial Payment Installment Agreement are normally based on of the amount of the back tax balance in addition to the financial condition of the taxpayer requesting settlement.

Submitting an Offer in Compromise The Offer in Compromise is another tax settlement alternative that enables a delinquent taxpayer settle a tax debt for less than the full amount owed. Although it can be an excellent way to resolve a back tax balance, the qualification criteria are very specific and are strictly adhered to. In order for an Offer in Compromise to be accepted by the collecting tax agency, the delinquent taxpayer must submit documentation showing that they will be unable to pay the full balance of their tax debt within a reasonable amount of time.

Qualifying for Innocent Spouse Relief Innocent Spouse Relief is a tax resolution option that is available to a spouse who has incurred a tax liability on a joint tax return due to items improperly reported on the return by the other spouse without their knowledge. Such items could include the omission or inaccurate reporting of income or the misuse of tax credits or tax deductions, among other things.

If you have a back tax balance that you are unable to pay, our tax settlement professionals will assist you in resolving it. Visit us today at www.professionaltaxresolution.com for more information about our services. With over 50 combined years of experience in the business of resolving tax debt, we can help you determine which tax 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.

Is an Offer in Compromise Right for You?

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Is an Offer in Compromise the Right Tax Settlement Option for You?

Is an Offer in Compromise the Right Tax Settlement Option for You?

Is an Offer in Compromise the Right Tax Settlement Option for You?

 An Offer in Compromise is a tax settlement option that allows a delinquent taxpayer to settle a back tax balance for less than the full amount owed. While it is an excellent way for a taxpayer who meets the IRS eligibility criteria to resolve a tax debt, not all taxpayers qualify. Because the acceptance criteria are specific and the application process is long and complicated, it is often best to consult a qualified tax professional for help with this tax settlement option.

What are the Offer in Compromise eligibility criteria?

A candidate for an IRS Offer in Compromise must meet one of the following three eligibility criteria:  1) doubt as to whether they are liable for the tax debt, 2) doubt as to whether they have the financial means to pay the full balance of the tax debt or 3) a determination by the IRS that an would be an effective means of resolving the tax debt.

What is the process for obtaining an Offer in Compromise?

  • Make an accurate determination of the back tax balance.

File all unfiled tax returns. Check previously filed returns for accuracy and file amended returns when necessary.

  • Determine and document eligibility.

Gather sufficient documentation to support one of the three Offer in Compromise eligibility criteria. This documentation may include tax returns, financial records, disability claims and medical records, among other things.

Complete all necessary forms according to the set IRS guidelines and submit together with the necessary supporting documentation and required filing fees.

  • Supply additional information as requested.

Promptly submit any documentation requested by the IRS during the review period.

How long does it take to obtain an Offer in Compromise?

The IRS will begin to review an Offer in Compromise application as soon as it is submitted. The review process normally takes between six and twelve months but can take up to a maximum of two years. If the IRS does not officially accept or reject an Offer of Compromise petition within two years from the date it is submitted, they are mandated to accept the original offer.

What options are available for paying the balance of an Offer in Compromise?
Once on Offer in Compromise is accepted, three payment plans are available to pay off the settlement amount. The three plans, which differ as to the amount of the initial payment, the number of installment payments and the time period over which the installments are made, are designed to accommodate taxpayers with varying back tax balances and financial situations. The three available payment plans are as follows: 1) the Lump Sum Cash Payment, 2) the Short Term Periodic Payment and 3) the Deferred Periodic Payment. These three plans allow for an Offer in Compromise settlement amount to be paid in full in anywhere from five months to more than 25 months, but within the ten year statutory collection period.

If you have an unresolved tax debt, visit us today at www.professionaltaxresolution.com. With over 16 years of experience working with the IRS, our experienced professionals will help you determine which tax settlement option best meets your specific needs. Contact us by phone at (877) 889-6527 or by email at info@protaxres.com to learn more about our customized tax settlement services and to receive a free, no obligation consultation.

$73,000 Tax Debt Reduced by 98.5%

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Tax Debt Reduced – Mr. S came to us as a referral from another client who was pleased with our service. After a consultation call, he came in to meet with one of our tax experts. His situation is very common in our line of business. He is a self-employed man who works from home. However, recent hardships made it difficult for him to pay the bills. To compensate, he had not paid 3 years’ worth of income taxes and owed the IRS about $73,000.

Our tax experts immediately began preparing his past unfiled tax returns. Once the tax returns had been filed, Mr. S still owed the IRS a significant amount of money. However, our team was able to determine that he was a good candidate for an Offer in Compromise (OIC). After 4 months of negotiating with the IRS, Mr. S wound up having to pay only $1000, approximately 1.5 % of the original amount he owed!

Although an Offer in Compromise is a fantastic way to dig oneself out of tax debt, it has very specific requirements. Talk with a qualified tax professional to see if you qualify. If you don’t, there are other ways to escape the bottomless pit of tax debt. An alternative tax settlement option we often seek is an Installment Agreement. We have had many successful cases of where an Installment Agreement has helped our clients pay off their tax debts.

 

Back Tax Balance Negatively Affects Credit Score

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Back Taxes Negatively Affects Credit Score

Back Taxes Negatively Affects Credit Score

Back Tax Balance Negatively Affects Credit Score – Back tax balances have a number of consequences, one of which is a negative impact on the delinquent taxpayer’s credit score. A back tax balance has the potential of reducing a person’s credit score by over 100 points, depending on the specific circumstances. If a taxpayer negotiates an Offer in Compromise or other tax settlement agreement that resolves a tax debt for less than the full amount owed, their credit score will be negatively affected for seven years from the date the partial payment settlement agreement is finalized. If, on the other hand, the back tax balance is not resolved and the IRS attempts to collect the tax debt by placing a tax lien on the taxpayer’s personal property, the lien will remain on the taxpayer’s credit report indefinitely, until the back tax balance is paid in full.

In addition to lowering a person’s credit score, owing back taxes has a number of other negative consequences. Because the IRS treats an outstanding tax liability like a loan from the government, they charge interest on any tax amount due. In addition, they assess a failure-to-pay penalty for each month there is a back tax balance up to a maximum of 25% of the initial tax amount owed. These two amounts are compounded over time and can potentially amount to as much as 50% of the original tax liability. Beyond charging interest and assessing penalties, the IRS will actively attempt to collect back taxes if the balance remains unpaid for any length of time. They will begin by issuing an IRS Letter or an IRS Notice and will follow that with more aggressive collection techniques such as a tax lien, a tax levy or a wage garnishment.

The negative effect on the credit score, the compounding financial assessments and the threat of enforced collection activities are all good reasons why back tax balances should be avoided if at all possible. If an outstanding tax liability does occur, the best course of action is to either promptly pay the back tax balance in full or request a short term tax extension. Although interest will continue to accrue during the period of an extension, the IRS will not initiate any further collection activities during the 120 day time period. If neither of these payment methods is an option, a taxpayer can pursue one of the numerous tax settlement options offered by the IRS. These tax settlement options include the Installment Agreement where the full balance of a tax debt is paid over time as well as the Partial Payment Installment Agreement and the Offer in Compromise where the IRS agrees to settle a tax debt for less that the full amount owed.

If you have a back tax balance that you are unable to pay, our tax settlement professionals can help you resolve it. 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 tax settlement option will be the best fit for your specific set of circumstances. For more information about our services, visit us today at professionaltaxresolution.com. Contact us by phone at (877)-889-6527 or by email at info@protaxres.com to receive a free, no obligation consultation.

Skinny on the Net Investment Income Tax

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The Skinny on the Net Investment Income Tax

The Skinny on the Net Investment Income Tax

The Skinny on the Net Investment Income Tax

The Skinny on the Net Investment Income Tax – The Net Investment Income Tax is a 3.8% surtax imposed on capital gains, interest, dividends, gains from the sale of property and passive business income such as rents and royalties. It applies to taxpayers with a modified adjusted gross income in excess of $200,000 ($250,000 for a married couple) and is imposed on the total amount of a person’s net investment income or the amount by which that income exceeds the income threshold, whichever is less. Although the Net Investment Income Tax took effect on January 1, 2013, the IRS did not issue the regulations governing the tax until sometime in November. Because of this time lag,  taxpayers who are subject this new passive income tax are just getting a handle on how it will affect them and what tax planning strategies may help to avoid some of the new tax burden.

The following are tax planning strategies that could reduce the amount of Net Investment Income Tax owed:

  1. Gift appreciated property to a charity.
  2. When you gift an appreciated asset, you can deduct its full appreciated value but it will not be subjected to the Net Investment Income Tax.
  3. Transfer appreciated property to a relative with an income below the threshold.
  4. The relative whose income is below the threshold can sell the appreciated asset and the gain will not be subjected to the Net Investment Income Tax.
  5. Invest in tax exempt assets.
  6. The interest and dividend payments from tax exempt investments such as certain state and municipal bonds are not subjected to the Net Investment Income Tax.
  7. Sell an appreciated asset on the installment plan.
  8. When an appreciated asset is sold on the installment plan, only that portion of the sale that is actually received is subjected to the Net Investment Income Tax.
  9. Loan money to a business that you own.
  10. Although most interest payments are subjected to the Net Investment Income Tax, this is not true for interest received from a loan made to a business that you own.
  11. Rent property to a business that you own.
  12. Although most rent payments are subjected to the Net Investment Income Tax, this is not true for rents received from a business that you own, even if you are not an active participant in the business.

As in all matters involving income tax, tax planning as it relates to the Net Investment Income Tax can result in a significant savings of tax dollars. Now that the IRS has issued the guidelines for this new tax, care should be taken to examine those guidelines and apply them to areas of potential tax savings.

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 tax settlement services, visit us today at www.professionaltaxresolution.com. Call us at 877.889.6527 or email us at info@protaxres.com to receive a free, no obligation consultation.