Tag Archives: IRS Tax Help

IRS Tax Debt Who Has it? Tax Lien Statistics Give Some Clues

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Feel like you are the only one with a tax debt problem? Ever wonder where in the US more people have the tax debt issues? Is this a problem of the rich or is the problem of incurring Tax Debt affecting everyone?
A recent 2010-2011 analysis of tax liens from across the U.S. found that New York City, which happens to have some of the wealthiest neighborhoods in the nation, was actually the country’s leading geographic area for federal tax liens. According to the data,New York City accounts for nine, or 18 percent, of the top 50 U.S. zip codes with the most liens recorded over the past 12 months ending in September.

Is this a problem of the rich of New York trying to skirt their fare share payments to the IRS? The economy has hit everyone so perhaps this is not the full story. Taking a harder look, four of theNew York City zip codes include some of Manhattan’s most affluent neighborhoods, including the Upper West Side (10025 and 10023), Chelsea(10011), and Murray Hill (10016), but the remaining five New York City zip codes are in more typically minority and working-class areas of Brooklyn, Queens, and the Bronx. To really understand how much richer these neighborhoods are, if you break down the differences in the New York Zip Code demographics by using recent U.S. Census data, those Manhattan’s four zip code tax debtors earned a whopping 250 percent more than those in the city’s less affluent areas. Of course with more income, comes the potential for bigger tax burden and the average IRS debt of Manhattan’s wealthier tax debtors is much higher than the amount owed by their working-class neighbors. It turns out the tax debt of the wealthy NYC zip codes averages $58,592 or about 86 times more than the boroughs. So, while the rich owe a lot more per capita the problem of owing tax debt in the NYC area is affecting both the rich and working class.

What about the rest of the country? Virtually all of the remaining nationwide zip codes in the top 50 are located in minority and economically depressed neighborhoods. Perhaps not coincidentally six of these neighborhoods are in areas hit hard by the economy including Las Vegas, Washington, D.C., and Detroit all of which have high unemployment, short sales and foreclosures which can lead to high levels of tax debt.

All that said, New Yorkhas been a high ranking tax debtors location for some time but this may be due to population density. Taking a second analysis of prior year nationwide tax liens, this time from July 2009 to July 2010, reveals that at that time New York City accounted for 16, or 32 percent, of the top 50 U.S. zip codes with the most tax liens and six of those New York zip codes were located in Manhattan.

Why did the NYC area drop in 2010-2011 to just 18 percent from a 2009-2010 amount of 32 percent? Seems the nationwide recession has caused more working-class Americans to lack the means to pay their tax debts. The problem is more widespread, so perhaps the number of individuals affected in New York is simply a smaller percentage to the growing nationwide issue.

If you are in need of tax settlement help, probably the most important decision you will make is the selection of a qualified tax professional. The CPAs and Enrolled Agents at Professional Tax Resolution have many years of experience providing tax settlement help. We encourage our customers to check our memberships, reviews and affiliations for verification of our credentials and our past successes. For more information about the tax settlement services we can provide, 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

 

IRS Tax Debt – Avoid a Tax Liability When Helping Friends or Relatives

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With credit so tight and banks unwilling to loan to small businesses and individuals, more and more family members are faced with the difficult decision of how or when to help out. Once you decide to lend a hand, you have to consider the potential tax implications. You ask yourself would it be better to make an outright gift or to make a loan with the expectation of repayment?

Let’s consider the scenario of a gift.

Many people are aware that small cash gifts generally don’t have to be reported to IRS. However, you should also keep in mind that if you give more than $13,000 in a single year to an individual it still needs to be reported on a gift tax return, and this could have an effect on your general estate situation.

But, wait are there not new estate tax rules that would protect you from a tax standpoint? The answer is Yes and No. The 2010 Tax Act provides everyone a $5 million lifetime exemption for estate and gift transfers. However, it does not exclude you from having to report a gift to an individual when it exceeds $13,000 in one year.

Why you might ask? The generous $5 million lifetime exemption is only on the books until Dec. 31, 2012 and many tax professionals dread the potential for a “claw back” which may in fact happen after the 2012 cut off considering the sorry state of our economy. What a ‘claw back” could mean is that all of the reportable gifts you made during your lifetime could be considered having actually occurred in your estate after 2012 – regardless of how much exemption Congress will allow after next year. The bottom line is you can’t assume that the IRS will not monitor your gift transfers in the months ahead even though you don’t have any tax liability right now.

So, now let’s consider a Loan.

Is it advantageous to treat your monetary support as a loan rather than an outright gift? A properly documented loan will show the IRS that you did not intend to make a reportable gift and will also clarify the repayment expectations with whomever you are helping. But perhaps most importantly for you, certain tax reporting issues can be easily eliminated with the documentation of this support having been a loan.

Of course this does not come without caution. The IRS is leery about the legitimacy of loans especially when they’re between family members. So whatever you prepare as loan documentation you must make it clear that it is what is considered an arm’s-length loan and that you expect to be repaid. While you don’t need an attorney to draft up a formal document, it does always help to spell out the payment terms and any interest that you may charge. Even better, you can try to secure collateral to legitimize your loan agreement.

Gosh, how can you even think about charging interest when the person you are helping is faced with a dire financial situation? It is true; most will just try to keep things simple by making an interest-free loan, especially when it involves family. But here is why this is not a great idea for you from a tax standpoint. The IRS really considers that true bona fide loans have a reasonable interest rate charged and paid by the borrower. In fact here is the real rub, if you make an “interest-free” loan over $10,000 to anyone, the IRS will “impute” interest for you, based on rates set by the Treasury. What does that mean? You could wind up paying tax on fictitious interest that you never received! To protect yourself, charge a minimal interest rate for any loan you make.

Ok so now what happens when that Loan fails to be repaid?

Yikes. Well, if you loaned $20,000 or $30,000 to a friend or a relative, you now have a true loss or debt and you might be wishing you some records of that fact. Why you ask? You may now be eligible for an attractive (bad-debt) tax deduction in the year of worthlessness.

But how formal a set of documentation do you need to be able to document this bad-debt deduction? Obviously the more the better, but if you have some written documentation and the transfer of funds was clearly labeled you may be ok. A landmark tax court decision observed that a valid debt may exist without all the legal formalities even when between related parties. In this case, the taxpayer prevailed over the IRS because his intentions were proved with business-like actions and by making informal notations – such as marking “loan” on checks and deposit slips, etc. In this particular case the key was that that taxpayer and the recipient of the loan were recognized as creditable witnesses with a prior debtor-creditor relationship. The bottom line is, do what you can to document and legitimize the loan and consider it and insurance policy for yourself in the future.

This is just one example of the tax advice and guidance we provide each and every day. If you have a loan that has failed to be repaid, a tax debt, unfiled tax returns, or any other tax related problem give us a call for a free, no obligation consultation (877) 889-6527. Talk directly with a CPA and understand what we can do to resolve your tax problem once and for all. Look us up – we are proud A rated members of the BBB.

IRS Tax Debt Alert – Tax Advocate Services Limited by Budget Cuts.

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The IRS Taxpayer Advocates Services are being forced to eliminate some of the services they offer, at least temporarily due to budget limitations. What are they cutting back on? In a blow to taxpayers, they will no longer deal with cases where the problem involves an IRS delay in processing tax documents. Of course as experienced Tax Professionals, we know that IRS delays are common and the backlog can create additional issues for taxpayers trying to resolving their tax situation. In fact, delays are becoming even longer and more frequent due to the current push for increased enforcement to collect an ever increasing amount of outstanding IRS tax debt.

The official IRS TAS statement read that “In the current federal budget environment, it has become clear that TAS will not have the resources to continue to handle its current inventory levels without adverse impact on its ability to provide effective and timely service. For that reason, we have been considering how to prioritize cases to ensure we can provide effective service to taxpayers who most need our assistance or whom TAS is best suited to assist.”

As of last week on Oct. 1, 2011, the announcement detailed that the TAS would generally no longer accept cases that only involve processing delays for the following issues: original returns; unpostable or reject returns; amended returns; and injured spouse claims.

Basically, the agency wants to try to prioritize their limited resources to taxpayers who are facing imminent threats of IRS enforcement action or who might otherwise be experiencing situations that meet the IRS definition of an economic burden.

What happens now if someone calls to report a delay in processing is that the TAS will simply refer the individual taxpayer onto the IRS function specializing in return processing issues, rather than accepting the case and resolving it themselves.

So how do you know if your case will be still be handled by the Tax Advocate Service? The TAS defines an “economic burden” according to four criteria:

  1. The taxpayer is experiencing economic harm or is about to suffer economic harm
  2. The taxpayer is facing an immediate threat of adverse action
  3. The taxpayer will incur significant costs if relief is not granted (including fees for professional representation)
  4. The taxpayer will suffer irreparable injury or long-term adverse impact if relief is not granted.

Here are some details about “systemic burden” cases which will NO LONGER qualify for TAS representation.

  1. The taxpayer has experienced a delay of more than 30 days to resolve a tax account problem
  2. The taxpayer has not received a response or resolution to the problem or inquiry by the date promised.
  3. A system or procedure has either failed to operate as intended or failed to resolve the taxpayer’s problem or dispute with the IRS.

The viewpoint of the TAS is that processing delays at the IRS typically arise either because the affected functions are overloaded with work or because of systemic processing glitches. Usually all the TAS can do in these cases is contact the appropriate IRS function and advocate for a resolution of the problem on a taxpayers behalf.  During this time the service used to provide updates to the taxpayer and look for patterns of delay to identify large systemic problems.  But, this watchdog type work is simply something they can no longer afford to continue to perform.

Are their exceptions? Yes, a few. The TAS added a caveat that it would help with a case when it received a referral from a congressional office or, if the expected refund would resolve an outstanding balance on another year’s return.

What does this mean for the taxpayer?  It may be more important than ever to consider hiring professional help to resolve your tax debt situation. With fewer and fewer self help resources out there, finding the right professional to represent you before the IRS has become critical. Time and delays cost everyone money and sometimes hiring a firm that will advocate on your behalf to resolve your problems correctly and quickly is the most cost effective alternative, even when faced with an economic burden.  At Professional Tax Resolution, we encourage you to do your research and look up our reviews and licensing.  As qualified professionals, we value our integrity and reputation and want you to feel confident that you have hired the right team to negotiate on your behalf.  To learn more about our services or for a free, no obligation consultation call us at 949-596-4143.