Tag Archives: IRS penalty

Tax Penalties: Removing the Failure to Pay Penalty

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Have you received an IRS notice of Failure to Pay? Last week, we discussed the IRS penalties and consequences of Failure to Pay, which is when a taxpayer fails to either meet a tax filing deadline, or make a tax payment by its due date. The consequences for Failure to File include 5% per month of the taxes due according to a tax return that the IRS has prepared in your place, with the maximum penalty being 25% of the owed amount. For outstanding taxes, the monthly IRS Failure to Pay Penalty can be 0.25%–1.0% of the amount due, with the average being a 0.5% IRS penalty.  These penalties can accumulate over time and become a large financial burden.

So, how can you remove the IRS Failure to Pay Penalty and reach a tax settlement? The IRS realizes that not every situation is black and white. They understand that a taxpayer’s full compliance is not always possible. Here are a few steps that may be helpful.

Reasonable cause If there is a legitimate reason for your failure to pay, the IRS may opt to remove your penalties. About a third of all IRS penalties are later removed. Reasonable causes include: the death of a family member or close friend, unavoidable absence (including hospitalization, prison, rehab, etc.), destruction of the location where the taxpayer’s records are held (by fire, flood, etc.), inability to pay due to material impairment by civil disturbances (such as divorce), bad or incorrect advice from a tax professional or directly from the IRS, and errors made while acting with “ordinary business care and prudence.” Whatever your reason, be prepared to answer questions about your situation and have the necessary applicable documentation to back it up.

Penalty abatement If you do have a reasonable cause, you may apply for penalty abatement. This is a formal dispute of the penalties and interest from failure to pay. Penalty abatement can also apply when you have an administrative waiver, or if IRS made a mistake. If you have a reasonable explanation for your situation and failure to pay, your penalties and interest could be completely removed and a refund could be claimed. Penalty abatements can be filed through sending a letter to the IRS or completing a Request for Abatement and Refund form.

IRS Fresh Start Program If you were unemployed for 30 consecutive days in 2011, or in 2012 prior to April 17th, you may be eligible for the Fresh Start Program. This IRS initiative gives taxpayers 6 months to pay their taxes without incurring failure to pay penalties, as long as the tax liabilities are paid in full by October 15th, 2012. The Fresh Start Program also applies self-employed individuals with a 25% or more drop in income during 2011. To qualify, the adjusted gross income (AGI) of a single filer must be less than $100,000, and joint filers less than $200,000. There is an application form for the Fresh Start Program on the IRS website.

If you have received an IRS Failure to Pay notice, our tax specialists can help you determine if the assessed tax penalty is accurate. Then, they can work with you on a payment plan, or determine if there was a reasonable cause that could apply to penalty abatement. For more information about our tax debt resolution 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. 

IRS Penalties for Hiding Income Offshore

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You may remember Mitt Romney’s refusal to make his complete tax returns public due to his offshore accounts in the Cayman Islands in January. Romney at least reported the income to the IRS, if not the American public. The OC Register reported this week that Lake Forest resident Louis Joseph Vadino is being investigated by the IRS for evading 12 years of taxes totaling nearly $4 million. He did this mainly by opening foreign bank accounts and creating companies outside of the U.S. to hold property titles, some of them hidden under the relatives’ names. He is scheduled to go to trial at the end of July.

The IRS has specially trained examiners and international partners that make sure U.S. citizens and residents accurately report income and pay the appropriate taxes on foreign entities. Failure to report foreign sources of income may be a criminal act. Worldwide income and foreign bank or investment accounts are required to be reported on your U.S. tax return. Filing rules for tax returns on income, estates, and gifts are generally identical whether you are living in the U.S. or abroad.

If you do attempt to evade taxes on income from foreign sources, you can be subject to additional taxes, IRS penalties, interest, fines, imprisonment, or deportation if you have a green card.

The Offshore Voluntary Disclosure Initiative (OVDI) of 2012, an IRS initiative that was extended indefinitely after being in effect from 2009–2011, allows taxpayers who have hidden offshore accounts to become compliant and current with their taxes without criminal liability. While they can face a 27.5% IRS penalty, taxpayers in limited circumstances may qualify for a penalty of 5%. Offshore accounts or assets that did not surpass $75,000 in any calendar year will have a penalty of 12.5%. Taxpayers may choose to be examined by the IRS if they feel the penalties are disproportionate to their income. Unreported foreign gifts or bequests of $100,000 or more in one year can be penalized from 25%–35%, even if no taxes are due. Under the OVDI process, penalties are waived for this situation.

While the tax penalties under OVDI may seem high, the benefits of voluntarily reporting this income far outweigh the costs. The IRS tax penalties could be much higher if the offshore income is discovered by examiners, not to mention the criminal prosecution that can lead to time in jail.

If you need help with becoming compliant with the IRS, our experienced tax settlement professionals can help. We can also help you file your taxes. Please visit professionaltaxresolution.com for more information on our tax resolution services. You may also call us at (877) 889-6527 or email info@protaxres.com to receive a free, no obligation consultation.

Avoid IRS Penalties – Settle your IRS Tax Debt – Tax Settlement Tips

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If you have been disregarding a notice from the IRS, tax filing deadlines, or ignoring tax liabilities, it is probably time to think about filing those back tax returns and paying outstanding tax balances. Even though the Obama Administration’s 2012 Budget request for increased funding for the Internal Revenues Service was not approved, the ability of the IRS to enforce tax compliance has improved over time. System modernization and software improvements have made it harder for a taxpayer to stay under the IRS radar by making it easier for this powerful collection agency to track down individuals who fail to file tax returns or owe back taxes.

When tax amounts are owed over an extended period of time, the financial burden can become overwhelming due to the continued accumulation of penalties and interest. It is not unusual for these additional amounts assessed by the IRS to total as much as 50% of the original tax amount owed.  The financial consequences of failing to file a tax return or owing back taxes are outlined below:

  • Failure to File Penalty The Failure to File Penalty is calculated on the tax balance due as shown on the tax return. This penalty is 5% of the tax amount due for each month the return is late, with a maximum penalty of 25%. Although it is seldom invoked, a taxpayer who fails to meet a filing deadline can also be charged with a misdemeanor, which carries a maximum fine of $25,000 and up to a one-year prison term.
  • Failure to Pay Penalty The Failure to Pay Penalty is calculated on the tax balance due as shown on the tax return. These penalty charges are assessed at the rate of 0.5% for each month that the tax balance is not paid in full, beginning from the original April 15th filing deadline. The Failure to Pay Penalty has no limit on the maximum percentage amount that can be assessed.
  • Interest Interest is charged on the balance of any tax liability for each day the back tax balance is not paid in full. The interest rate, which is variable and set quarterly, is currently 4%.

With the downturn of the economy, even more taxpayers have missed filing deadlines or have found themselves with outstanding tax balances that they are unable to pay. When these tax debts or unfiled tax returns are left unresolved, the IRS will initiate collection activities to enforce compliance and collect the tax amounts owed. Unpaid tax debt or unfiled tax returns will result in collection efforts by the IRS. These collection activities begin with the assessment of interest and penalties and are followed by more aggressive actions including the filing of tax liens or tax levies and the initiation of wage garnishments. On a positive note, there are many tax settlement options available to taxpayers who are unable to pay the tax balances they owe. The important thing is to begin the resolution process immediately before penalties and interest accumulate further or the more severe consequences of owing the tax debt are imposed.

A licensed tax professional will be familiar with all of the tax settlement alternatives available and can be invaluable asset to a taxpayer who is the subject of collection attempts by the IRS. If you have failed to meet tax filing deadlines or have an unresolved tax liability, our experienced tax professionals can help you become tax compliant. For more information about our tax settlement services, visit www.professionaltaxresolution.com. The members of our staff have a thorough understanding of tax law together with the experience to know which tax settlement option will most effectively resolve your specific back tax issues. Contact us today at (877) 889-6527 or info@protaxres.com to receive a free, no obligation consultation.

 

What is the 1099-K?–What New IRS Form 1099-K Means for Your Tax Return

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As tax season is underway and you receive W-2s and 1099-MISCs in the mail, you may notice something new this year: Form 1099-K. Preparing your taxes and filing Form W-2 and 1099-MISC may be more familiar, but what is this Form 1099-K? It is important to know because the Merchant Card and Third Party Network Payments form, or 1099-K, must either be filed electronically to the IRS by April 2, 2012, or on paper to the IRS by February 28, 2012. Timeliness is vital if you want to avoid a delinquent return.

As part of the Housing Assistance Tax Act of 2008, specific credit card or third party merchant payments for goods and services will need to be reported via the 1099-K. A transaction to be reported is when a credit card or gift card is accepted as payment or when you are paid by PayPal or another third party payment network. Not included are ATM withdrawals, credit card cash advances, issued checks from a payment card, or transactions where a payment card was accepted by merchant related to the card issuer.

In other words, if you have a merchant account for your credit card, or an electronic payment account like PayPal, you may receive a 1099-K from your service provider. This could affect consultants such as lawyers that receive payments online or by credit card for their services, freelancers who are paid via PayPal like eBay merchants and Etsy sellers, and small businesses who receive credit, debit, and PayPal payments for their merchandise.

When is reporting required for a 1099-K? When gross payments to the individual payee are over $20,000, and if there are more than 200 transactions. Therefore, if you are an occasional seller, you  don’t need to worry about receiving a 1099-K. However, successful online sellers will likely be receiving one this year. If this applies to you, make sure to plan for paying the taxes on this income.

Since 2012 marks the first year this form is required and it can cause some confusion, the IRS is offering 1099-K filing transitional relief this year, as long as the filer is making a “good faith effort” to file it accurately. This means that penalty provisions and withholding requirements will be delayed by the IRS until January 1, 2013. The reporting is what is moving forward in 2012.

The 1099-K is meant to improve tax compliance by businesses so the IRS can determine the completeness and correctness of their tax returns. This is a way for the government to tackle income that they think is underreported. As with a W-2 or 1099-MISC, receivers of the 1099-K are expected to report this income when completing their taxes.

Don’t let new forms like the 1099-K or updates to existing ones cause confusion and mistakes that can lead to penalties in the future. Get help with tax settlement from the team at ProfesionalTaxResolution.com. They have the expertise to help you with tax filing your tax returns.  Call (877) 889-6257 or email info@protaxres.com today for a free, no obligation consultation.

IRS Back Tax Tips – Help with Late Tax Bills – Pay Your Tax Debt

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Did you receive an IRS notice that you owe back taxes? While owing money can be a big worry, ignoring the problem will only make things worse. There are options to pay your tax debt, even if you can’t do it all at once.

If you need help with tax resolution because you owe back taxes, you can take advantage of different methods of payment or request that the payments be broken up into installments. Here are some tips:

  • A late tax bill from the IRS is expected to be paid promptly, including the taxes owed, penalties, and interest. You may want to get a loan so you can pay it in full to avoid making installment payments if you do not already have the money ready. A bank loan could have a lower interest rate than what you would have to pay in additional interest and penalties.
  • Tax bills can be paid via credit card. Your credit card could also have a lower interest rate than what you would have to pay in additional interest and penalties.
  • Tax bills may also be paid through checks, money orders, cash, cashier’s checks, or electronic fund transfers.
  • If you are unable to pay in full, you may be eligible to request an installment agreement between you and the IRS. The agreement would break up the amount due into monthly installments. Make sure that your required returns are all filed and your estimated tax payments are current.
  • You can request installment payments whether your tax bill is over or under $25,000. You should be informed within roughly 30 days if the IRS approves or denies your request, or if they need more information.

If you receive a late tax bill, our experienced professionals can help you resolve your back tax issues. For more information about our tax debt resolution services, visit us today at www.professionaltaxresolution.com. Contact us by phone at (877) 889-6527 or by email at info@protaxres.com to receive a free, no obligation consultation.