Tag Archives: unfiled returns

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. 

Tax Penalties: What is Failure to Pay?

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A tax penalty is assessed when a taxpayer fails to meet a tax filing deadline or fails to make a tax payment when it is due. The IRS and State Tax Agencies impose such penalties as a method of encouraging taxpayers to meet their tax obligations. Both the Failure to File Penalty and the Failure to Pay Penalty must be announced through formal written notification from the IRS or State Tax Agency. The written notice must state the reason the tax penalty is being assessed and must also include a full explanation of how it has been calculated. Because tax penalty notices are computer generated and often include errors, it is important for a taxpayer to verify that the reported tax penalty amounts are accurate before making payment.

With the economic climate what it is today, many taxpayers owe taxes that they are unable to pay. A taxpayer who is faced with this situation should be well aware that the worst response is to ignore the problem and hope that it will go away. The financial consequences of disregarding tax deadlines and tax payments accumulate rapidly over time and more drastic measures are eventually imposed when a tax debt is ignored. A taxpayer’s best approach is to always comply with tax filing deadlines to make tax payments when they are due. When sufficient funds are not available to pay the full amount of the debt, the taxpayer should make full use of one of the many tax settlement options offered by the collecting tax agency.

The Consequences of Not Paying Your Tax Bill 

  • When no tax return has been filed, the IRS or State Tax Agency has the authority create a Substitute for Return. This document is an educated guess as to how much a taxpayer owes based on information from other sources. Since the Substitute for Return does not include deductions and exemptions to which the taxpayer may be entitled, the estimated tax liability shown is usually greater than what is actually owed.
  • A taxpayer who fails to file a tax return can be assessed a Failure to File Penalty of 5% of the amount of tax due for each month that the return is overdue up to a maximum of 25% of the amount owed. In addition, although it is seldom invoked, a taxpayer who fails to file a tax return can be charged with a misdemeanor which can carry a fine of up to $25,000 and a one year prison term.
  • When a tax return has been filed but there is an outstanding tax amount due, a taxpayer can be assessed a monthly Failure to Pay Penalty of between 0.25% and 1.0% of outstanding tax balance. The Failure to Pay Penalty, which is normally set at 0.5 % per month, is assessed from the date the tax return was originally due until the full balance of the tax amount is paid or a tax settlement agreement has been negotiated with the collecting tax agency.
  • When tax penalties and interest are allowed to accumulate over time, the result is often a tax debt that is much more formidable than the original amount owed. In addition, the IRS or State Tax Agency will eventually resort to more aggressive techniques such as levies, liens, and wage garnishments when an outstanding tax obligation is left unresolved. These more drastic actions can have a lasting affect on a taxpayer’s credit rating and overall financial well-being.

If you have been assessed a tax penalty for failure to file a tax return or failure to pay a tax debt, we can help you determine whether the assessed tax penalty is accurate. Our experienced tax settlement professionals will carefully examine previously filed returns and file missing and amended returns when necessary. By identifying available tax benefits that have not been utilized, this process alone can often result in a significant reduction in the tax amount owed. If there is an outstanding tax liability, we can help you resolve it. 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.

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.