The most popular resolution that you’ll hear about is the “Offer in Compromise”, or an OIC. You always see advertisements on late night T.V. claiming that companies settled IRS tax debt for “pennies on the dollar.” Every U.S. taxpayer would like to get an OIC when needed, but what are your chances of qualifying for this option? Of the 3 million taxpayers that had an outstanding tax debt in 2007, less than 10% of those individuals/businesses were even a candidate to submit for an offer. There are many companies in the tax resolution industry that will submit an OIC for you knowing that you won’t even be a candidate, and have NO chance at getting approved. This has gotten so bad with companies that even the IRS has begun to warn taxpayers about these companies, known as “Offer Mills”.
There are many variables that need to be considered when trying to determine if you are an OIC candidate. Some of the main things you need to consider are:
1) The age of the tax debt. Remember, the IRS has 10 years to collect on a tax debt. The best way to understand the IRS view on this is to pretend someone owes you $2000. Would you accept a $200 settlement the next day, and call it even, or ask them to make continual payments?
2) You must also consider your assets. Some of the assets the IRS is going to want know about is real estate property, vehicles, boats, and any other asset that could be borrowed against, or is considered a “recreation vehicle”. When considering submitting an OIC, the IRS is going to force you to go through a COMPLETE financial investigation, and they aren’t going to settle if you have the ability to borrow, or even sell, an asset to full pay your tax debt.
3) Another common variable that throws the OIC out for taxpayers is your income, or future income potential. A lot of taxpayers say they can’t afford to pay the IRS due to their current financial situation and are struggling to “stay above water”, so to speak, with their bills. After further investigation you discover they have a $4,000 house payment…Like we have discussed before, the IRS is only going to give you credit for certain living standards on items such as house payments, car payments, utilities, and other living expenses. The IRS is also going to look at your level of education and future income potential. For example, if someone is a doctor and has the ability to earn large amounts of money but they are working at a job making minimum wage, the IRS will not settle. Basically, the IRS considers your income potential and will not settle knowing your income could increase considerably within future months.
The variables listed above are just a few of what the IRS will look at to determine if you are a candidate for an OIC. The lesson that should be learned from this is that you may run into companies that will promise to settle your debt without a complete financial analysis. These promises are simply untrue. There are, however, honest companies that will assist you in determining whether or not you qualify for an OIC. This will lead you to a genuine resolution with the IRS.
Wednesday, September 17, 2008
The "Tax Pre-nup"
I’m sure everyone is familiar with what a pre-nuptial agreement is; you hear about celebrities and theirs all the time. Its purpose is to protect your wealth and assets when you marry, just in case that marriage ends in divorce. But, have you considered what happens if you marry a person with a tax debt? Is there a way to protect yourself from your partner’s debt, even when you share a last name?
Typically, when you get married, people begin filling their tax returns under the status of “married filing jointly”. Doing so does provide you with a tax break, but when your spouse has an outstanding tax debt, filing jointly can actually attach you to any debt that exists, even debt accumulated prior to your marriage.
I have recently been helping a client who owed an IRS tax debt prior to his marriage in 2007. The couple filed their tax returns jointly in the year 2007, which then attached his spouse to over $50,000 in tax debt. Unfortunately, this is a debt she was completely unaware of…The client’s spouse is now being threatened with wage garnishments and their joint bank account is being levied. Imagine the stress that would place on a marriage…
The best way to avoid getting yourself attached to your spouse’s previous IRS debt is to continue to file separately under the status of “married filing separate”. Even if it’s too late and you have already filed jointly there is still an option for you. If you have read our previous blogs, we have been discussing the 21 options available to you as a U.S. Taxpayer. One of those resolutions is “Innocent, or Injured, Spouse Relief”. Innocent Spouse Relief is your best shot at getting yourself un-attached from the tax debt. This, however, can be an extremely complex process. An Enrolled Agent would be able to assist you in this matter, and aid you in your dealings with the IRS. Hopefully, this is a situation you will never be faced with, but just in case, there are options meant to protect you.
Typically, when you get married, people begin filling their tax returns under the status of “married filing jointly”. Doing so does provide you with a tax break, but when your spouse has an outstanding tax debt, filing jointly can actually attach you to any debt that exists, even debt accumulated prior to your marriage.
I have recently been helping a client who owed an IRS tax debt prior to his marriage in 2007. The couple filed their tax returns jointly in the year 2007, which then attached his spouse to over $50,000 in tax debt. Unfortunately, this is a debt she was completely unaware of…The client’s spouse is now being threatened with wage garnishments and their joint bank account is being levied. Imagine the stress that would place on a marriage…
The best way to avoid getting yourself attached to your spouse’s previous IRS debt is to continue to file separately under the status of “married filing separate”. Even if it’s too late and you have already filed jointly there is still an option for you. If you have read our previous blogs, we have been discussing the 21 options available to you as a U.S. Taxpayer. One of those resolutions is “Innocent, or Injured, Spouse Relief”. Innocent Spouse Relief is your best shot at getting yourself un-attached from the tax debt. This, however, can be an extremely complex process. An Enrolled Agent would be able to assist you in this matter, and aid you in your dealings with the IRS. Hopefully, this is a situation you will never be faced with, but just in case, there are options meant to protect you.
Wednesday, September 10, 2008
The “Easy” Payment Plan
In the previous blog, I talked about the 21 resolutions available to a U.S. taxpayer. The resolution that the IRS offers most often is a payment plan, or Installment Agreement (IA). In the past, the IRS would offer a taxpayer a 60 month payment term to pay off their tax debt, but the IRS is changing their policies on this.
It used to be that a taxpayer could get into an “IA” without going through a full financial analysis with the IRS, and disclosing all of their assets, incomes, and available lines of credit. The collection agents at the IRS have begun a process of requesting a 433-F from everyone requesting to be placed into an “IA”. By doing this, the IRS can explore every option that you have available when it comes to paying off your debt in full immediately, even if via credit cards or an equity loan.
There are two things you must remember when dealing with the IRS collections department. The first is that it is their job to collect, and to collect quickly. Secondly, the IRS believes they are more important than ANY other creditor, so they will be happy to put you in debt to someone else, as long as you’re not in debt to them. Having a taxpayer submit a 433-F also allows the IRS to see your income and your expenses. They will give you the “national standard” for your available Monthly Disposable Income (MDI).
When the IRS discovers your “MDI”, they will request that the entire amount become your monthly payment.
So, what should you do now that the IRS is making you negotiate to even get a payment plan? Your best option is to hire a Professional Negotiator within the IRS. As I have covered before, there are former IRS agents who are now Enrolled Agents and know what your rights are within the IRM. These professionals can get you into the BEST possible resolution, for you, within the tax law.
It used to be that a taxpayer could get into an “IA” without going through a full financial analysis with the IRS, and disclosing all of their assets, incomes, and available lines of credit. The collection agents at the IRS have begun a process of requesting a 433-F from everyone requesting to be placed into an “IA”. By doing this, the IRS can explore every option that you have available when it comes to paying off your debt in full immediately, even if via credit cards or an equity loan.
There are two things you must remember when dealing with the IRS collections department. The first is that it is their job to collect, and to collect quickly. Secondly, the IRS believes they are more important than ANY other creditor, so they will be happy to put you in debt to someone else, as long as you’re not in debt to them. Having a taxpayer submit a 433-F also allows the IRS to see your income and your expenses. They will give you the “national standard” for your available Monthly Disposable Income (MDI).
When the IRS discovers your “MDI”, they will request that the entire amount become your monthly payment.
So, what should you do now that the IRS is making you negotiate to even get a payment plan? Your best option is to hire a Professional Negotiator within the IRS. As I have covered before, there are former IRS agents who are now Enrolled Agents and know what your rights are within the IRM. These professionals can get you into the BEST possible resolution, for you, within the tax law.
Tuesday, September 9, 2008
Your Real Options….
In previous blogs, I have mentioned that a U.S. taxpayer has 21 resolution options within the IRS tax law. The 21 resolutions can be broken down into 5 major categories (I will cover the different categories in further detail in future blogs). Most of the time, these resolutions can be combined to resolve your tax debt. Therefore, you will want to consult a professional when evaluating all of these options. Some of these areas are extremely technical, and the IRM (Internal Revenue Manuel) is extremely strict on the rules and regulations for many of these options. Below you will find the 21 resolutions listed under each specific category. Again, we will touch on these more in depth within upcoming blogs.
Tax Abatement Programs
1. Offer-in-Compromise: Doubt as to Liability
2. Offer-in-Compromise: Doubt as to Collectability
3. Offer-in Compromise: Effective Tax Administration
4. The Partial Pay Installment Agreement (this was an “OIC” in the past)
5. Innocent or Injured Spouse Relief
6. Amended Tax Returns to Reduce Liability
7. Audit Response/Taxpayer Advocate Response
8. Civil Trust Fund Penalty Negotiation
9. Collection Appeals Program
10. Collection Due Process Appea
l11. Audit Reconsideration
Affordable Payment Plans
12. 60 Month Payment Terms
13. Ability to pay Payment Terms
14. Use of Net Realizable Equity to pay-down liability- lien subordination, etc.
Deferral programs
15. Currently Not Collectible Status (CNC-Status 53)
16. Negotiated 30 to 120 day extension to Full Pay
17. Negotiated 12 month payment plan for the lifestyle adjustment, conditional IAs.
Penalty Abatement programs
18. Penalty Abatement request for reasonable cause
19. Penalty Abatement request for IRS error
Tax Expiration Programs
20. Statute of Limitations
21. Defunct Business
Tax Abatement Programs
1. Offer-in-Compromise: Doubt as to Liability
2. Offer-in-Compromise: Doubt as to Collectability
3. Offer-in Compromise: Effective Tax Administration
4. The Partial Pay Installment Agreement (this was an “OIC” in the past)
5. Innocent or Injured Spouse Relief
6. Amended Tax Returns to Reduce Liability
7. Audit Response/Taxpayer Advocate Response
8. Civil Trust Fund Penalty Negotiation
9. Collection Appeals Program
10. Collection Due Process Appea
l11. Audit Reconsideration
Affordable Payment Plans
12. 60 Month Payment Terms
13. Ability to pay Payment Terms
14. Use of Net Realizable Equity to pay-down liability- lien subordination, etc.
Deferral programs
15. Currently Not Collectible Status (CNC-Status 53)
16. Negotiated 30 to 120 day extension to Full Pay
17. Negotiated 12 month payment plan for the lifestyle adjustment, conditional IAs.
Penalty Abatement programs
18. Penalty Abatement request for reasonable cause
19. Penalty Abatement request for IRS error
Tax Expiration Programs
20. Statute of Limitations
21. Defunct Business
Survey Says...
Last week, on Ask the Tax Wizard, we had a poll asking the question: Which action would bring the worst punishment from the IRS? The choices were: a) Not filing your tax return, b) Defaulting on a current agreement, c) Owing the IRS money, and d) Not withholding enough taxes, or making estimated tax payments.
Once the poll ended, most of you thought the answer was “not filing your tax returns”, and that answer is Correct! Although none of the above mentioned are considered okay, unfiled taxes will get you in some serious trouble. The funny thing about the IRS is that it is not a crime to owe the IRS money; this is just a civil offense. However, not filing your tax return is actually a criminal offense, and is punishable with up to one year in prison for each unfiled year. So, you could owe the IRS millions of dollars and only have to worry about levies, liens, and/or property seizure, but you would still maintain your freedom.
A good example of this is Wesley Snipes. Despite the fact that he owes the IRS millions, he was sentenced to 3 years in prison for “willfully” avoiding filing a tax return. As we have covered before, filing your return can be complex (So, you need to file your tax returns, but complicated will filing be?) so seek help in preparing your return! If you find yourself with unfiled tax returns, don’t wait around, there is help just waiting for you.
Once the poll ended, most of you thought the answer was “not filing your tax returns”, and that answer is Correct! Although none of the above mentioned are considered okay, unfiled taxes will get you in some serious trouble. The funny thing about the IRS is that it is not a crime to owe the IRS money; this is just a civil offense. However, not filing your tax return is actually a criminal offense, and is punishable with up to one year in prison for each unfiled year. So, you could owe the IRS millions of dollars and only have to worry about levies, liens, and/or property seizure, but you would still maintain your freedom.
A good example of this is Wesley Snipes. Despite the fact that he owes the IRS millions, he was sentenced to 3 years in prison for “willfully” avoiding filing a tax return. As we have covered before, filing your return can be complex (So, you need to file your tax returns, but complicated will filing be?) so seek help in preparing your return! If you find yourself with unfiled tax returns, don’t wait around, there is help just waiting for you.
Tuesday, September 2, 2008
How much will the IRS take from you?
The most common mistake I see taxpayers make is to ignore the letters the IRS sends them. The IRS follows a “letter cycle”, giving you multiple chances to pay what you owe, before they move on to levying your wages or bank account. A wage/bank levy can cause real damage, hindering your ability to pay your bills or maintain your lifestyle. If you are a w-2 employee, (meaning your employer withholds money from your paychecks) then the IRS can levy 85% of your income. If you are a contractor, or considered self employed, the IRS can garnish 100% of your income! The IRS can actually contact the people who pay you and require them to send any money currently owed to you directly to them.
Let’s briefly discuss the types of levies that exist. There are 2 that the IRS can attach to your wages. The first is a 668 (a), which is a ONE-TIME levy on your wages from your 1099 income. Therefore, once your company/employer sends the money owed, you should be able to resume earning your income. There is also a 668 (w), which is a continuous levy that remains until the debt is completely satisfied. Recently, I dealt with a client who was self-employed. The ACS (Automated Collection Division) within the IRS mistakenly sent a 668 (w) to his vendor. By law, his contractor was forced to send all his income for WEEKS to the IRS, not realizing that it was the IRS who had made a huge mistake and levied him as if he was a wage earner, instead of a self employed individual.
Okay, so you didn’t respond to the letters sent to you by the IRS threatening to levy your wages/accounts and now it’s been done. What are your options? The most difficult thing I deal with is getting the IRS to release a wage garnishment once the IRS sinks its teeth into someone’s wages. In this case, you will need the assistance of an “Enrolled Agent”. If you hire an “Enrolled Agent” to help you deal with this situation, they will be able to act quickly and request that the IRS release the levy if it is creating a hardship. The “Enrolled Agent” will also be able to assist you in reaching some type of formal resolution with the IRS. Otherwise, you would remain in active collections with them. A professional who deals with the IRS collections divisions on a regular basis will be able to assist you in getting into one of 21 resolutions available to a U.S. taxpayer, but we will cover these more in depth in upcoming blogs!
Let’s briefly discuss the types of levies that exist. There are 2 that the IRS can attach to your wages. The first is a 668 (a), which is a ONE-TIME levy on your wages from your 1099 income. Therefore, once your company/employer sends the money owed, you should be able to resume earning your income. There is also a 668 (w), which is a continuous levy that remains until the debt is completely satisfied. Recently, I dealt with a client who was self-employed. The ACS (Automated Collection Division) within the IRS mistakenly sent a 668 (w) to his vendor. By law, his contractor was forced to send all his income for WEEKS to the IRS, not realizing that it was the IRS who had made a huge mistake and levied him as if he was a wage earner, instead of a self employed individual.
Okay, so you didn’t respond to the letters sent to you by the IRS threatening to levy your wages/accounts and now it’s been done. What are your options? The most difficult thing I deal with is getting the IRS to release a wage garnishment once the IRS sinks its teeth into someone’s wages. In this case, you will need the assistance of an “Enrolled Agent”. If you hire an “Enrolled Agent” to help you deal with this situation, they will be able to act quickly and request that the IRS release the levy if it is creating a hardship. The “Enrolled Agent” will also be able to assist you in reaching some type of formal resolution with the IRS. Otherwise, you would remain in active collections with them. A professional who deals with the IRS collections divisions on a regular basis will be able to assist you in getting into one of 21 resolutions available to a U.S. taxpayer, but we will cover these more in depth in upcoming blogs!
Do you owe more than $100,000 to the IRS?
To the average individual owing $100,000, or more, to the IRS seems like a pretty big deal and it is. When individuals or businesses get this far in debt to the IRS they are often in danger of being assigned a Revenue Officer, or being referred to one of two High Liability Units within the IRS. The time to act, when faced with this situation, is NOW! One thing you must understand about being assigned a Revenue Officer, or “RO”, and being assigned to a High Liability Unit is that their only purpose within the IRS is to collect what you owe, and to do it quickly.
Most “RO’s” that I deal with are quick to levy bank accounts and wages first, and then ask questions later. Typically, the Revenue Officer you are assigned to will come to your home or business and leave a list of demands, as well as financial documents they need to see. They do this because they are looking for ANY possible way to collect the debt from you.
There are 2 High Liability Units, one located in Holtsville, New York, the other in Buffalo. Although this group won’t come to you home or business to collect the debt, they work via phone and will levy every possible asset at their disposal in order to do so. You can also count on having a lien filed against you, which will be done using your social security number at the local court house in the amount of the owed debt. These Revenue Officers also have the option of turning the lien into a judgment against you, which makes the tax debt permanent until the debt is paid in full.
So, now that you know what an RO can do, what can YOU do if you find yourself in this situation? The best advice I can give you is to hire a professional who knows the law, your rights, and the best ways to manage your relationship with a Revenue Officer.
Most “RO’s” that I deal with are quick to levy bank accounts and wages first, and then ask questions later. Typically, the Revenue Officer you are assigned to will come to your home or business and leave a list of demands, as well as financial documents they need to see. They do this because they are looking for ANY possible way to collect the debt from you.
There are 2 High Liability Units, one located in Holtsville, New York, the other in Buffalo. Although this group won’t come to you home or business to collect the debt, they work via phone and will levy every possible asset at their disposal in order to do so. You can also count on having a lien filed against you, which will be done using your social security number at the local court house in the amount of the owed debt. These Revenue Officers also have the option of turning the lien into a judgment against you, which makes the tax debt permanent until the debt is paid in full.
So, now that you know what an RO can do, what can YOU do if you find yourself in this situation? The best advice I can give you is to hire a professional who knows the law, your rights, and the best ways to manage your relationship with a Revenue Officer.
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