Tag Archives: Tax Interest

Don’t Bounce Your Tax Check!

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Taxpayers beware! The penalties for bouncing a check to the U. S Treasury Department have recently been increased. Generally, if the IRS extends an existing tax credit or offers a new one, they will make a corresponding change in the tax code to “pay” for the credit. In this case penalties and fees on bad checks have been increased to cover the changes initiated by the Homebuyer Assistance and Improvement Act of 2010 which extended the closing date for home purchases eligible for the homebuyer tax credit.  

The new tax law imposes a 2% penalty on any disallowed check or money order payable to the U.S. Treasury for an amount over $1,250. For bounced payments under $1,250, the fee is the amount of the check or $25, whichever is less. These bad check fees have now been extended to cover electronic payments as well.

In addition to the new penalties which have been imposed on disallowed IRS payments, taxpayers are still subject to the normal penalties and interest that apply to any unpaid tax debt until the obligation is paid in full.  The sum total of interest and penalties owed to the IRS together with bad check fees charged by the issuing bank can turn out to be a significant dollar amount. 

Even with fees like this aside, there is no doubt that the IRS can be intimidating.  Let us help you with your tax problems; call Professional Tax Resolution today for a free no obligation consultation.  (949) 596-4143.

Case In Point-Hiring A Qualified Professional To Handle Your Tax Settlement = A Good Investment

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Although the IRS has numerous programs to assist taxpayers in settling outstanding tax debts, deciding which option to use is not always an easy task. Very specific acceptance criteria must be met in order for an application for tax relief to have any chance of being accepted. In addition, the process of filing the initial paperwork and documentation and following up by submitting the required responses to communication from the IRS can be lengthy and challenging. During the time a tax settlement application is under consideration, interest and penalties can accrue. If the settlement offer is then rejected, not only has there been a waste of time and energy on the part of the taxpayer, but the actual amount of the tax debt may have increased making the taxpayer’s financial situation worse.

Below is the detail of an interesting IRS Tax Court case in which the IRS Appeals Office failed to grant a taxpayer’s request for tax debt relief. The case is interesting because it highlights a number of the potential filing problems described in the preceding paragraph. Susan Fay Mostafa, the taxpayer in question, neglected to verify that she met the acceptance criteria for the type of tax debt assistance she was requesting. Her initial error was then compounded when she failed to file a formal request for tax relief on the correct IRS form and then did not respond to several official IRS letters and notices in an appropriate and timely manner.

The Case of Susan Fay Mostafa

• She received an IRS Notice of Deficiency for $1377 for a 1996 tax return that had not been filed. The notice stated that she was also liable for a 25% failure to file penalty.
• Although she submitted a Tax Court petition to challenge the deficiency notice, she later received an IRS notice of Intent to Levy.
• She then challenged the proposed levy by requesting a hearing with the IRS Appeals Office.
• At the same time, she wrote a check to the IRS for $701 and wrote on the check that endorsing it would mean accepting the 1996 tax return as Paid in Full.
• Once the amount of the check was credited to her account, she spoke with the appeals officer several times indicating that she considered her case closed since the IRS had cashed her check.
• In spite of the payment and the subsequent communication, the IRS Tax Court ruled against her.
• After considering all of the trial evidence, the Court of Appeals argued that she had not followed the specific IRS procedures for submitting an Offer in Compromise and had not received either an IRS letter or an IRS notice indicating that such an offer had been accepted.

The Tax Court case outlined above clearly shows that the assistance of a qualified tax settlement specialist may be helpful when submitting an application for tax debt assistance to the IRS. Each year many taxpayers who truly meet the qualification criteria for specific IRS tax relief programs have their applications rejected for one or more of the following reasons:

• failure to meet the acceptance criteria for a selected settlement option
• failure to file a request for assistance using the correct IRS form(s)
• failure to complete the required IRS form(s)correctly
• failure to provide all of the necessary supporting documentation
• failure to conform to the IRS time constraints for submitting forms and documentation
• failure to respond to formal IRS letters and notices in an appropriate and timely manner

Susan Fay Mostafa made all of the above errors when she tried to resolve her tax debt situation without the assistance of a qualified tax specialist. When the IRS Tax Court denied her appeal, she was no better off than she had been when she submitted her initial Tax Court petition. Had she enlisted the help of a tax professional, it would have been that person’s job to adequately document her inability to pay the full amount of her tax debt. Following that, it would have been the specialist’s responsibility to submit the request for relief with the accompanying documentation, to respond to follow-up communication from the IRS in an appropriate and timely manner and to advocate for Ms. Mostafa before the United States Tax Court.

The bottom line is not to try to handle a complex tax settlement case alone. Hire the right professional to help you achieve tax debt relief. Visit www.professinoaltaxresolution.com for more information about tax settlement options and contact us today at (949)-596-4143 or info@protaxres.com to receive a free, no obligation consultation.

FAQ about the IRS Notice of Deficiency

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What is an IRS Notice of Deficiency?
A Notice of Deficiency is a formal letter from the IRS informing a taxpayer of a tax deficiency and advising them of their appeal rights with the United States Tax Court. It is required by law and is sent by registered or certified mail to the taxpayer’s last known address. Although a Notice of Deficiency can be issued when no tax return has been filed, it is most often sent when the tax amount shown on a submitted return is less than the actual amount owed according to IRS calculations.

What information is provided by an IRS Notice of Deficiency?
A Notice of Deficiency must include an explanation for the deficiency together with a statement of the tax, interest and penalties that have been assessed. The notice should also include the final date on which the taxpayer can file a petition with the United States Tax Court appealing the assessment. However, it should be noted that failure by the IRS to specify the last day on which to file a petition will not invalidate an otherwise valid deficiency notice if the taxpayer was not prejudiced by the omission.

How does a taxpayer respond to a Notice of Deficiency?
Within 90 days after a Notice of Deficiency is mailed (or within 150 days after mailing if the notice is addressed to a person outside the United States) the taxpayer must pay the assessed amount or file a petition with the Tax Court to contest the liability. Payment of the assessed amount after the deficiency notice is mailed does not deprive the Tax Court of jurisdiction over the deficiency. In addition, discussion of the case with the IRS during the 90 day period does not extend the time period during which a petition can be filed.

What are the consequences if a response is not submitted in a timely manner?
If the taxpayer does not file a Tax Court petition within the required time period, the appeal process is closed and IRS has the authority to collect the tax. Since the Tax Court is the only court that will hear the question of whether a tax liability is really owed, the taxpayer’s only option after the 90 day deadline has passed is to pay the assessed amount in full and then apply for a refund. If a response is not received within 90 days after the issuance of a Notice of Deficiency, the IRS is likely to issue a Notice to Levy. The Notice to Levy allows a 30 day response time, after which a taxpayer’s property may be seized to enforce collection if the assessed tax still has not been paid. The requirement to issue the Notice to Levy and wait 30 days does not apply if the IRS finds that the collection of tax is in jeopardy.

What are the advantages of obtaining the services of an experienced tax professional?
The IRS is authorized to collect taxes and issuing a Notice of Deficiency is the first step in the collection process. Receiving such a notice can be both intimidating and confusing and may make enlisting the help of a qualified tax professional a worthwhile investment. Collection of taxes by the IRS is permitted without proof of the debt so the burden rests with the taxpayer to determine whether the tax amount shown on the Notice of Deficiency is actually owed. Because of the complexities of tax law, accurately making this determination may require someone with both expert knowledge and experience. In addition, obtaining the help of a tax professional will ensure that the response to such a notice meets the IRS requirements and is submitted correctly, thus avoiding unpleasant consequences down the road.

If you have received a letter from the IRS such as a Notice of Deficiency or Notice to Levy or are threatened with a tax lien or wage garnishment, we can help stop the immediate collection action and help you work toward resolving your tax debt. Contact us today at (949) 596-4143 or info@protaxres.com to receive a free, no obligation consultation.

Learn How the IRS Grants An Abatement of Penalties

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Penalties in the form of interest and other fees are incurred when a taxpayer fails to file a tax return by a filing deadline and/or fails to pay a tax debt when it is due. Although interest and other penalties assessed by the IRS function to create equity within the tax system and encourage compliance, they often impose a significant financial burden on the taxpayer by increasing a taxpayer’s IRS tax debt by as much as fifty percent. When the circumstances are such that a taxpayer has acted in a reasonable and prudent manner yet, because of circumstance beyond his or her control, is unable to meet a tax debt obligation, the IRS may reduce or eliminate the penalties.
The IRS grants the abatement of penalties when “the taxpayer exercises ordinary business care and prudence in determining their tax obligations but is unable to comply with those obligations.” This is called Reasonable Cause Relief. Essentially this means that something beyond the control of the taxpayer has occurred that caused him or her not to file a tax return or pay a tax debt in a timely fashion. In order to qualify for Reasonable Cause Relief, it must be demonstrated that the taxpayer took reasonable steps to counter the events that resulted in his or her inability to pay and yet was still unable meet the assessed tax obligations.
Unfortunately, despite what some tax relief or tax settlement companies might advertise, abatement through Reasonable Cause Relief is very difficult to obtain. The burden of proof that requisite care and prudence was exercised rests with the taxpayer. In addition, the following prerequisites must be met in order to be considered by the IRS as a candidate for Reasonable Cause Relief:
• The taxpayer or the tax settlement representative must make a request for abatement.

• The taxpayer’s situation must be the result of, or closely analogous to, one of the following events:

  • Inability to obtain necessary records
  • Serious illness, death, or other unavoidable absence
  • Fire, casualty, natural disaster or other disturbance
  • Incorrect advice from a competent tax professional
  • Incorrect advice, either oral or written, from the IRS
  • An Act of God.

• The taxpayer must meet the IRS standards of burden of proof regarding one or more of these events.

A qualified Certified Public Accountant handling a tax settlement case will know and understand the factors the IRS considers when determining whether a taxpayer is eligible for Reasonable Cause Relief and will make sure the case is well prepared before approaching the IRS.

The following is a sample list of questions the IRS may present when making a determination as to whether or not to grant an abatement:

  • What events prevented the timely filing of a tax document or resulted in the late payment of a tax debt?
  • When did the events happen?
  • ?Why did these events prevent the taxpayer from complying with the tax law?
  • How were other financial affairs handled during the time period in question?
  • Does it appear that the taxpayer paid other creditors and singled out the IRS as the creditor not to be paid?
  • What steps were taken in an attempt to mitigate the circumstances that prevented payment of the tax debt?
  • Is there a direct “timeline” correlation between the extenuating circumstances and the failure to meet the tax debt obligations in question?
  • Is there a history of late payment of tax debt and /or failure to meet filing deadlines?
  • Were the circumstances such that they could not have been anticipated or avoided?
  • What documentation was provided to prove reasonable cause?
  • Was the documentation provided by an uninterested third party?

Call us at (949)-596-4143 for more information about tax debt, tax relief, tax settlement, tax levies, wage garnishment, audit defense or removal of tax liens.