Have IRS Tax Debt? Need a New Passport? The GAO wants to know.

Posted on December 7, 2011 by Kursti Nakagawa

As of the end of fiscal 2010, the balance of reported unpaid federal taxes was about $330 billion according to the IRS. This is a huge amount and as we have written about in the past, the enforcement of the tax laws and the tax code is on Government Accountability Office’s list of high-risk areas. The deficit being what it is it may come as no surprise that the GAO was asked to investigate, by cross referencing unpaid federal taxes and passport issuance, the magnitude of known unpaid federal taxes for individuals who were issued passports. Selecting a past year, the GAO did a study for the fiscal year 2008 to identify examples of passport recipients who had known unpaid federal taxes.

They study discovered that individual states issued passports to about 16 million individuals during fiscal year 2008 and that of these, over 224,000 individuals (over 1 percent) owed more than $5.8 billion in unpaid federal taxes. That is JUST those individuals who got new passports in 2008 – not all passport holders.

Does that come as a surprise? Currently each state is not authorized to restrict the issuance of a passport to an individual because they owe federal taxes. In addition, federal law does not permit the IRS to disclose taxpayer information, including unpaid federal taxes to State officials unless the taxpayer consents. The reason this is at least somewhat surprising is that in contrast, federal law does permit certain other restrictions on the issuance of passports to individuals, such as for those individuals owing child support debts over $2,500.

Really, the problem is likely far greater than 1% of the newly issued passport holding population. In addition to the obvious population balance of all valid passport holders for the studied year of 2008, the estimated amount of unpaid federal taxes was actually likely understated because it excluded individuals who had not yet filed tax returns or who had underreported income.

Making matters harder, individual States currently cannot compel a passport applicant to provide a Social Security Number (SSN). Because the IRS uses the SSN to identify each taxpayer, without an SSN you cannot match an individual back to their IRS data.

This study had produced such alarming results already and the GAO wanted to know a bit more. They took the 2008 study and dug deeper into the backgrounds of a very small group of just 25 passport recipients. Clearly this is a tiny study and cannot be reflective of the population as a whole. That said, some pretty interesting things were discovered. When investigating for abuse related to the federal tax system or criminal activity, of these 25 cases, at least 10 passport recipients had been indicted or convicted of federal laws! In addition, the IRS had assessed trust fund recovery penalties on several passport recipients; a penalty which is applied when an individual does not remit payroll taxes to the federal government. How does someone fall behind on Payroll taxes? Instead of acting appropriately as the trustee of an individual employee’s withholding and forwarding it onto IRS, they divert the money for other purposes. Using payroll taxes is a big crime; in fact the willful failure to remit payroll taxes is a felony underU.S.law.

In this smaller study of the 2008, of those 25 new passport holders, some had accumulated substantial wealth and assets, including million-dollar houses and luxury vehicles, all while failing to pay their federal taxes. In fact, of the 25, at least 16 passport recipients traveled outside the country all while owing federal taxes and another 4 passport recipients actually resided in another country at the time! Worse yet, two individuals used the identities of deceased people to fraudulently obtain passports in the first place and then used the passports to travel toMexico,France, and Africa. Ironically in one case, the unpaid tax debt belonged to a deceased individual and in the other; the debt was actually incurred by the imposter.

If this small study is any indication, there appears to be a big opportunity to crack down on passport issuance for those who owe federal tax debt. Although nothing official has been implemented to date, Congress could pursue policy to link federal tax debt collection and passport issuance by enabling States to screen and prevent individuals who owe federal taxes from receiving passports. This would require transparency and more communication between the IRS and the individual States, but it seems that the opportunity to collect unpaid tax debt would be greatly improved as a result.

If you have an unresolved tax debt, visit us today at www.professionaltaxresolution.com for more information about our customized tax settlement assistance. The CPAs and tax professionals at Professional Tax Resolution use their extensive knowledge of the tax code to provide taxpayers with the best settlement option available. Contact us by phone at (877) 889-6527 or by email at info@protaxres.com to learn more about our services and to receive a free, no obligation consultation.

IRS Innocent Spouse Relief – A $1,200,000 Tax Settlement Success Story

Posted on November 17, 2011 by Kursti Nakagawa

Mrs. M. was referred to us by a local attorney. Her husband had recently passed away and, shortly after his death, she became aware of an outstanding IRS tax liability in the amount of an astonishing $1,200,000.

Mrs. M. had had no knowledge of this tax debt before her husband’s death. A few months later in our initial meeting with her, we learned that her personal tragedy was even worse than the death of her husband and realization of this massive IRS debt. She informed us that she had hired a very large tax settlement firm to resolve the issue and had already paid them a whopping $25,000. She came to us after six months, when she had no indication that the tax settlement company she had employed was making progress towards resolving the issue. Now skeptical that a firm might really be able to help, she did her research and read all of our credentials and reviews before arranging our initial meeting.

We immediately started working on her case and during our initial conversation with the IRS Revenue Officer assigned to Mrs. M’s file, we were brought up to date on the details of the case. Unfortunately due to the inaction of the previous tax settlement company, the IRS had already levied the client’s insurance and financial accounts. Even more alarming was the fact that the IRS was also in the process pursuing other aggressive collection techniques to the extent that Mrs. M actually risked the immediate seizure of her additional assets to settle the outstanding liability. After assuring the revenue officer that we were working towards a resolution, we were granted a 90 day hold. This time interval gave us the opportunity to resolve the case in manor that was acceptable to the IRS and still allowed Mrs. M to keep her assets.

After reviewing all of the relevant information and consulting with our client, we felt that she qualified for Innocent Spouse Relief. Innocent Spouse Relief is an IRS tax settlement option available to taxpayers who owe the IRS for tax amounts incurred by their spouse. While it is an excellent tax settlement alternative for a spouse who meets the qualifying criteria, it is definitely not a blanket solution for anyone with a marital tax debt. The acceptance criteria for Innocent Spouse Relief are very explicit and must be well documented. After careful analysis, we determined that Mrs. M’s situation met these criteria and felt that her application would be accepted by the IRS

After gathering all of the relevant information and documentation, we were able to prepare and file the application for Innocent Spouse Relief. Although there was a wait of several months after the request was submitted, the IRS granted the Innocent Spouse Relief for our client’s half of the $1,200,000 tax liability.

This was excellent news. However because the husband was deceased, this is not the end of the story. While this was the best result that anyone could have hoped for, the IRS did not relieve the husband’s estate for its share of the outstanding tax debt. Therefore to complete the resolution process, we continued our efforts. We were able to negotiate a settlement contract for the estate with the IRS. The terms were that Mrs. M. would sell one of her residences and whatever the sale of the home produced as an asset, the IRS would accept 50% of the net equity from this sale as a final settlement of the debt.

This is truly a remarkable success story and Mrs. M. is finally able to move on and heal after a tumultuous year.

Here is a Recap:

Total Deceased Husband/Wife Total IRS liability $1,200,000
Wife’s portion of this liability $600,000
Wife’s liability after Innocent Spouse Relief Ruling $0 a 100% Reduction!
Husband’s Estate IRS Liability $600,000
Tax Settlement (50% of Net Equity from Home Sale) $300,000 a 50% Reduction!

This example is an excellent illustration of how Innocent Spouse Relief can be used to settle large IRS tax debt. In Mrs. M’s case the joint $1,200,000 tax debt was settled for just $300,000! The wife’s personal liability was reduced by 100% and the total estate settled for just 25% of the original liability!

IRS Tax Debt – Don’t Just Ignore It – Resolve Tax Debt Before the IRS Collects

Posted on November 16, 2011 by Kursti Nakagawa

Most people who have IRS debt do not find themselves in that situation due to an unwillingness to pay their fair share of taxes. It is much more common that taxpayers find themselves owing the IRS either due to a mistake on a previously filed income tax return or some unavoidable circumstance such as a lost job, a decrease in earned income or an illness. While the initial IRS debt may have been the result of an unfortunate turn of events or a simple mistake or unreported item, it has often been compounded over time by the addition further taxes, penalties and interest. It is not uncommon for penalties and interest, which are often applied retroactively when the IRS or state tax agency makes an adjustment to a return from a prior year, to account for as much as 50% of an outstanding IRS debt balance.

Resolving an IRS Debt

The first and most important thing that a taxpayer should do to resolve an IRS debt is to stop avoiding the issue. Taxpayers often think they can simply ignore their IRS debt because collection efforts begin mildly with letters simply stating the outstanding balance. Generally, the IRS has 10 years from the date a tax return is filed to collect an IRS debt. While collection efforts begin with passive techniques such as sending an IRS letter or IRS notice, as the 10 year collection period progresses, the methods get more aggressive. Collection attempts eventually lead to the possibility of filing a lax levy on bank accounts, wage garnishments or the filing of a tax lien. Any of these actions can have a drastic effect on a taxpayer’s credit rating and financial wellbeing. When faced with an IRS debt, a taxpayer may be best served by contacting a tax settlement professional to help resolve the issue.

How a Tax Debt Settlement Firm Can Help

The most obvious way to avoid an escalating IRS debt is to not incur the debt in the first place. While this may seem obvious, it is easier said than done. Mistakes are made and life events occur that are sometimes unavoidable. However once an IRS debt is incurred, it may be a good investment to enlist the help of a qualified professional to resolve the issue. Without professional help, individuals often find themselves overwhelmed by the barrage of letters from the IRS and confusion over how to proceed.

Why Professional Tax Resolution is a Good Choice

There are many different types of tax settlement firms and some, unfortunately, make promises they can’t keep and resort to unethical practices. For this reason, it important to research a potential tax resolution firm in order to select one that is reputable and has had a history of success settling IRS debt issues. To insure that a firm meets these qualifications, it is a good idea to verify their current licensure with the state certification agency and the Better Business Bureau. It is also advisable to review references if any are available. At Professional Tax Resolution, we encourage you to check our licenses, memberships and reviews. Our licensed CPAs and Enrolled Agents represent our clients before the IRS and state agencies from start to finish. We work with our clients to prepare all un-filed tax returns, confirm and correct balances as reported by the IRS and provide our clients with the best tax settlement option available. Call (877) 889-6527 for a free, no obligation consultation today.

IRS Offer in Compromise – A Review of Eligibility Guidelines

Posted on November 9, 2011 by Kursti Nakagawa

We get a number of calls inquiring about the IRS Offer in Compromise Program. While an IRS Offer in Compromise is a very effective tax settlement option for a very well defined group of taxpayers, it is definitely not the optimum solution for anyone with an unresolved tax debt. The acceptance criteria for an Offer in Compromise are very specific, the application process is lengthy and the rejection rate can be high. Amazingly the IRS can also take up to two years from the date it receives the initial application to accept or reject an Offer in Compromise. With this timeframe in mind, it is often advantageous to enlist professional help when considering this tax settlement option. An experienced tax settlement professional will be able to determine whether the taxpayer meets the strict IRS qualification criteria and, following that determination, will ensure that the Offer in Compromise application is submitted according to published IRS guidelines. Utilizing a qualified CPA or tax professional can drastically reduce the rejection rate because the preliminary work to qualify you as an applicant and to appropriately complete the forms is done for you.

Not sure if you qualify? The primary components necessary to obtain a successful Offer in Compromise tax settlement are outlined below:

The taxpayer must meet one of the three eligibility criteria specified by the IRS. Those three criteria are

1) doubt as to whether the taxpayer is liable for the tax debt

2) doubt as to whether the taxpayer has the means to pay the tax debt

3) a determination that settling the tax debt would promote effective tax resolution.

Since the Offer in Compromise allows a taxpayer to settle a tax debt for less than the full amount owed, the IRS only accepts applications that adhere strictly to theses acceptance criteria.

The taxpayer’s eligibility must be adequately documented. Sufficient documentation to support one of the three eligibility criteria is required. This documentation may include tax returns and other financial records, disability claims and records of medical treatment and hospitalization, among other things
The total amount of the tax debt must be accurate. This means that the taxpayer must be current in submitting tax returns. All previously submitted returns must be checked for accuracy and refiled when necessary.
The Offer in Compromise application must have been submitted according to specific IRS guidelines. All of the necessary forms included with the application must be complete and all required fees and supporting documentation must be included.

Once an Offer in Compromise application is submitted, the IRS will begin its review process. During this time additional information and supporting documentation will be requested when necessary. The review process usually takes anywhere from six to twelve months but can take a maximum of two years. If the application is not officially accepted or rejected within two years, the IRS is required to accept the offer.

If you have an unresolved tax debt, visit us today at www.professionaltaxresolution.com for more information about our customized tax settlement assistance. With over 16 years of experience working with the IRS, our experienced professionals will help you determine which available 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 services and to receive a free, no obligation consultation

Can the IRS Take my Home Because I Owe Unpaid Taxes?

Posted on November 4, 2011 by Kursti Nakagawa

A common fear is that the IRS may take your valuable assets to pay off unpaid taxes. The fact is, if you owe the IRS money they have a legal right to seize your possessions, including your home but the reality is, you have the ability stop or resolve the problem before it gets to that point.

But wait, how can the IRS take your home? Relax – there are a number of steps that have to happen first. Here is a quick review:

The first step in the process if you owe money to the IRS is that they must notify you. Believe us – they are going to make every effort to make sure you know that you have an unpaid tax debt.

Of course owing tax debt does not imply you did something illegal or ill intended. Often a simple taxpayer misunderstanding causes a tax debt. For instance, perhaps this is the first time you ever paid taxes. Perhaps you just filed an extension. You can incur a tax debt in either of these scenarios. New taxpayers may not know that they need to pay their tax liability at the time they file their taxes and taxpayers who have never filed an extension may not realize that their tax liability must still be paid on the original tax return due date of April 15 and not the extension date.

If you fall into one of these categories, it is likely that your unpaid tax liability is just a simple misunderstanding and one or two letters from the IRS to the taxpayer informing you of the tax debt is often enough to outline the problem and get the tax debt paid off; resolving the tax issue.

If a tax debt is not resolved through a few letters to you, the second step in the tax debt collections process is that the IRS will become more aggressive in their collection effort and may start the process to seize some assets. From the viewpoint of the IRS, if you do not respond to the IRS’ initial notifications of an unpaid taxes or follow-up to their communication, the IRS is lead to believe that you are not willing to work with them. The seizure of assets is therefore a defensive action and only occurs in situations where the taxpayer is unwilling to work with the IRS to establish a payment plan or otherwise address the tax debt owed.

If at this point a taxpayer is still not working with the IRS to figure out a resolution, the next step in the collections process is an IRS levy of some kind. Before a levy can occur, the IRS will provide you a written notice of their intent to place a levy against your assets or property. Only after the written notice will they obtain a levy – something which allows the IRS to take your property to satisfy a tax debt. Types of assets or property they can levy include bank accounts, wages, vehicles, and other personal property, including your house.

Clearly the IRS is aware that seizing the home of a taxpayer can cause a significant hardship in the life of the taxpayer. Therefore, they won’t do so unless they see no other option. Really in order to get to this point, the taxpayer has to remain unwilling to work with the IRS to establish a payment plan to pay the taxes. Also in order for the IRS to take a home, all of the other more liquid taxpayer assets – such as cash, wages, etc… must not have been sufficient enough to satisfy the amount tax debt.

As you can see, it takes a lot of effort to force the IRS to seize a home. As long as you file your taxes, even when you cannot afford to pay them and are willing to work with the IRS and agree to a payment plan, you can avoid the common worry of having your home seized by the IRS.

If you find yourself unable to pay your tax liability to the IRS, it is a good idea to hire a tax professional. The CPA’s and EA’s at Professional Tax Resolution have extensive experience working with the IRS and can address your tax debt quickly and effectively. We provide our clients guidance about their specific tax situation and advice them on the best tax settlement options available. Call for a free, no obligation tax consultation with our CPA’s today, (877) 889-6527 or email us at info@protaxres.com.