Did the IRS Make it Easier to Settle Tax Debt?

On May 21st, the IRS announced a new initiative to their Fresh Start program that may allow more tax payers to qualify – in what they are calling ‘more flexible terms’ –  for an Offer in Compromise settlement. The information published so far lacks necessary details and leaves many questions unanswered, but here are the basics the IRS has put forth so far. As this program begins to solidify and take shape, more detail is sure to follow.

According to the Form 656 Booklet – Offer in Compromise, the IRS will now qualify taxpayers on either a Lump Sum cash offer or a Periodic Payment offer. A Lump Sum cash settlement would qualify a taxpayer’s ability to pay the debt based on a future projection of monthly disposable income (income after household expenses) of 12 months plus any equity in assets; the taxpayer would have to make 5 or fewer payments over 2 years to satisfy the offer amount. The Periodic Payment option would qualify a taxpayer on 24 months of disposable income plus any equity in assets, and the taxpayer would have to make 24 total monthly payments during the offer review period and after acceptance to satisfy the offer amount.

The IRS formerly had a Long-Term Deferred option, which was essentially a Partial Payment Installment Agreement, where a taxpayer makes monthly payments over the life of the collection statute – the period of time the IRS had remaining to collect the debt – and the remaining debt and obligation to make payments expired the day the statute expired. This option is missing from the Fresh Start offer program. The IRS seems to consider this an installment agreement option at this point. The new program implies that if a taxpayer’s offer relies heavily on assets and equity valuation, then the offer may be an attractive option; however, if a taxpayer’s offer relies heavily on monthly disposable income, the IRS will more than likely take into account other factors, such as the statutes longer than 2 years, and require the taxpayer establish a type of installment plan.

Of course, whether applying the old rules or the new Fresh Start rules, the IRS would never accept an offer if a taxpayer has the ability to pay in full before the collection statute of limitations expires. The IRS has yet to publish any information outlining who exactly will not qualify for this new program other than a full pay candidate; so much of the information is speculative at this point. But one thing seems clear: the IRS is broke, needs some money immediately versus over long periods of time, and is considering a settlement for the most distressed taxpayers in today’s economy.

This article is not meant to convey a full understanding of the IRS Offer in Compromise program, only the recent changes from the limited information the IRS has published to this point. For further details on the offer program or any other tax concerns, please contact a tax professional who is current on the most recent changes to the IRS Fresh Start program.

Bryan Miller, “thetaxguy”, writes freelance financial and tax-related articles, blogs at taxhelpforum, and is a Tax Analyst at the tax resolution and mitigation firm ASAP Tax Relief .

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U.S. Trustee Forces Tax Masters to a Complete Halt

It may be a well-known fact by now that the once larger-than-life and controversial tax resolution company Tax Masters filed for Chapter 11 bankruptcy on March 18th, 2012, but new court records indicate that the U.S. Trustee has essentially shut down the limited operations Tax Masters was continuing to run, indicating this business is no longer a going concern.

In an April 24th motion set forth by Attorney for Trustee Heather A. Potts, Ms. Potts indicates that any benefit from the limited payroll and operations the business is continuing to run is outweighed and negated by continuing costs. Mainly, many of the employees function during the bankruptcy appears to address answering questions about the bankruptcy and not performing any tax-related work. Also, most of the payments coming in through credit card and bank drafts may be newer cases for work yet to be completed; therefore, the current cash flow would only result in future refunds or increased creditors, stating: “The current status of the Debtor’s [Tax Masters] record-keeping is, to put it mildly, inadequate…”  The U.S. Trustee needs to discontinue operations, as it is hindering any further investigation into the company. A newer motion suggests the company may find itself in Chapter 7 before too long.

In effect, the benefit of helping any current clients, continuing to take payments through accounts receivable, and limiting the company’s creditors by doing so does not justify the expense being incurred. The Honorable David R. Jones, United States Bankruptcy Judge, signed this motion the same day. What this means for former clients of Tax Masters  is there is no longer a telephone resource for finding information on the bankruptcy or the status of your case, and more than likely your case is dead in the water at the IRS.

The document goes on to say that Tax Master’s bankruptcy has compounded the work necessary to accomplish even simple tasks on existing cases, the IRS has closed several clients cases as a result, and that the company would [have to] “…begin its efforts anew, starting with securing a power of attorney signed by the client.”

This means that refunds are not likely for most Tax Master’s clients. Existing clients will now have to become a creditor and stand in line behind the primary, secured creditors for the company and are likely to receive nothing. In March, a Texas jury found in a unanimous decision, that Tax Masters, its holding company TMIRS and Cox (founder / CEO) to be in violation of over 100,000 counts of FTC deceptive advertising practices.

If you need to move forward with your case, you will have to seek council with a professional firm that has years of experience in dealing with the IRS. Avoid companies who utilize sales people as they do not know the ins and outs of complex IRC Code, and are only commission-motivated to sign you up as a client for others who will perform the work. Be sure to ask if you are speaking with a professional or sales associate when calling a firm, and you may always check the professional’s credentials and license before engaging a firm.

Bryan Miller, “thetaxguy”, writes freelance financial and tax-related articles, blogs at taxhelpforum, and is a Tax Analyst at the tax resolution and mitigation firm ASAP Tax Relief .

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The IRS Owes Taxpayers One “B”illion Dollars

The IRS announced yesterday taxpayers are due an astonishing $1 Billion Dollars for tax year 2008. Yes, that is with a “B”. Reason being approximately 1,089,000 taxpayers failed to file a 2008 return containing an estimated median refund of $637.

There may be several reasons for not filing the return to receive money due, but one stands out: taxpayers who earned less than necessary to file an information return, but had tax withholdings or paid estimated payments from income, may be missing the boat. Many of these taxpayers have the ability to file a return, claim the taxes paid in, and take advantage of that years’ tax credits and allowable deductions.

For 2008, the IRS cites many taxpayers in this category who did not receive the full Economic Stimulus credit will miss out on the Recovery Rebate Credit (get more information by clicking here) and the more well-known Earned Income Credit.

Other taxpayers do not file for lack of documentation, lost forms W-2, 1099, 1098 or 5498, or simply have not gotten around to it. You may obtain this information by ordering it on www.irs.gov, filing Form 4506-T, or by calling 1-800-908-9946.

Attention for those who owe the IRS currently: the IRS gives a 3-year Statute of Limitations to taxpayers to file a return and receive a refund or have that refund credit applied to a liability. The deadline for the 2008 original return will be this years’ tax deadline of April 17th, 2012. Filing this return may reduce the current taxes you owe.

As always, seek assistance from a qualified professional or contact the IRS.

Bryan Miller, “thetaxguy”, writes freelance financial and tax-related articles, blogs at taxhelpforum, and is a Tax Analyst at the tax resolution and mitigation firm ASAP Tax Relief .

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Bigger, Bader, Faster, Stronger! Filing Tax Returns Timely and Accurately Just Became More Important Than Ever

The IRS announced yesterday that a second round table meeting will be held January 25th, 2012 to discuss the new Real-Time Tax System (RTTS). The first meeting, held on December 8th, 2011, consisted of representatives of consumer groups, tax professionals and state and federal governments. The second round is to attain feedback from small to large businesses, financial institutions, software providers and state revenue commissions.

In the past, the IRS used what is known as the “look back” model that took months after a tax return filing to determine if it was accurate and compliant. Now with RTTS, the IRS will conduct compliance and accuracy checks upon initial return processing against third party information (i.e., past filing status, social security number verification, and W-2 and 1099 information to include unearned income from dividends, annuities, pensions, and withdrawals from retirement plans, etc.). They will then allow the taxpayer to make corrections or submit substantiation to claims of deductions and credits, if needed, before processing the return.

The American Institute of Certified Public Accountants (AICPA) openly supported the move in a December 8th, 2011 statement citing that the initiative will eliminate the need for millions of IRS contacts with taxpayers, improve overall efficiency of the tax system, and may help curb identity theft and Earned Income Credit fraud.

What does this mean? The IRS is getting smarter and faster. Ultimately, the Real-Time Tax System will catch up to non-compliant tax payers and fraudulent filers more quickly, increasing the need for taxpayers to file on time, file accurately, and consider utilizing professional tax services. The IRS will charge a 20% Accuracy Related Penalty for any increase in tax they find that exceeds 10% or $5,000, and a 40% Fraud Penalty if the IRS deems willful intent to deceive.

Also keep in mind that you are the final signature on a tax return, and other than some cases of fraud or criminal activity by a tax preparer, you will be held responsible for your return. Make sure that any preparer  is able to answer questions you may have regarding the preparation of the return, and is able properly backup any item you feel needs addressing. Stay away from tax preparers touting their ability to increase your refund by finding loopholes, using OID deductions, or claiming Earned Income Credits for children and dependents that do not live in your house, you do not financially support, and who are not related to you.

As always, seek professional services and advice from a trusted source and do the right thing the first time. This will save months of headaches and costly mistakes.

Bryan Miller, “thetaxguy”, writes freelance financial and tax-related articles, blogs at taxhelpforum, and is a Tax Specialist at the tax resolution and mitigation firm ASAP Tax Relief .

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Emancipation Day & Weekend Extends the 2012 Tax Filing Season

Similar to calendar year 2011, April 15th, 2012 falls on a weekend – Sunday to be specific. The following Monday is Emancipation Day in the District of Columbia. Since D.C. holidays have the same effect as federal holidays, the 2012 tax season is extended making the filing deadline April 17th, 2012. For you early-bird filers expecting a refund, the IRS will begin accepting e-filed returns on January 17th, 2012.

However, unlike last year’s protracted season that largely stemmed from regulation delays, the deadline remains October 15th, 2012 for filing an extension of your return. Also, never forget that filing – no matter what date or what year – and paying taxes are two separate events. If you owe this year, the amount due or estimated amount due remains steadfast at April 17th, 2012.

Anticipating around 144 Million individual income tax returns, the IRS cites several improvements to the overall system making filing as easy as possible this year. Improvements include an easier to navigate website, direct access to software and help from www.irs.gov, and even an interactive video series to assist with your return.

Taxpayers making less than $57,000 per year have over 20 free software choices for e-filing from name brand vendors. There is no income limit or usage limit for utilizing any IRS fillable PDF forms. These can be filled in directly from your computer and printed out to sign and file. Taxpayers making less than $50,000 per year may even find free tax preparation service through a Volunteer Income Tax Assistance program (VITA).  You may find VITA centers at local libraries, community centers, or by calling  1-800-906-9887 to find the nearest VITA center for your location. 

Bryan Miller, “thetaxguy”, writes freelance financial and tax-related articles, blogs at taxhelpforum, and is a Tax Specialist at the tax resolution and mitigation firm ASAP Tax Relief .

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JK Harris Tax Resolution Firm Goes Under

Another one bites the dust! And another one down…

Once advertised as the “nation’s largest tax resolution firm”, JK Harris closed their doors late on Thursday afternoon, December 29th (link to full article here). Plagued by lawsuits and claims of misleading it’s clients, JK Harris follows Ronnie Deutche, American Tax Relief and others down the unfortunate path of misconstruing and overusing the IRS Offer in Compromise (OIC) program.

The program settles tax debts for less than the tax owed, but in order to qualify, you have to practically be pauper-status or willing to pay an amount equal to a full asset liquidation to settle your debt. Then the IRS will factor in variables such as future income potential, length of time left on the statute to collect the debt, and how much monthly income is left over after meeting qualified living expenses. Other caveats of a cash lump-sum offer include a 20% down payment of the offer amount when the application is submitted, a $150 submission fee, and the full balance of the offer due within 5 months of acceptance. You may pay the offer amount over the number of years left on the collection statute of limitations, but penalties and interest accrue while the debt is being paid.

The Offer in Compromise program is a great relief for the taxpayers who qualify. For those that don’t, the IRS has several other resolution programs to fit just about every situation. A qualified professional can guide you through the program that will be the best solution for your given situation. The tax resolution industry helps those in need of financial, tax, and accounting assistance, but do your homework, be sure the firm is reputable, speak to a professional and not a salesman, (avoid the urge to call someone from a late night cable TV commercial), and know what type of work is being performed and when.

Bryan Miller, “thetaxguy”, writes freelance financial and tax-related articles, blogs at taxhelpforum, and is a Tax Specialist at the tax resolution and mitigation firm ASAP Tax Relief .

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Year End Tax Planning Strategies

In the past couple of years, Congress made sweeping changes or last minute extensions to existing tax laws late in the year causing uncertainty as to how best to plan for the upcoming tax season. This year, however, the song basically remains the same. Other than adjustments for inflation, tax laws and deductions for 2011 look much like 2010. Some anticipated changes may occur in 2012 prompting tax and financial planners to advise: take advantage of the certainty you have right now.

For businesses and the self-employed, stick with typical strategies like accelerating deductions into the current year while delaying recognition of income into next year.  Purchase staple items you know you will need next year to increase your expenses for this year. Defer sending invoices until January. Even individual taxpayers who itemize on Schedule A can pay next years’ property tax bill in December and max out contributions to your IRA.

Some energy-efficient deductions remain in 2011, but they are not the same as in prior years. This year’s deductions apply to permanent home improvements and not to purchased appliances.

As of right now, the Bush-era lower tax rates on capital gains are set to expire next year.  So if you’re considering cashing out on some good performing stocks that you’ve owned for more than a year, now would be a good time to take your gains rather than risking higher rates next year.  Alternatively, you may sell off some of your portfolio at a loss this year to create offsets or future carryover losses against the higher rates to come.

December is a great time to make charitable contributions if you haven’t already.  Some financial planners are advising that this is a great year for gifting. The $5 million lifetime gift exclusion may be on the congressional chopping block next year.

The motivation for the advice this year correlates almost exclusively to changes Congress may make in an effort to tackle the deficit.   That may mean higher tax rates and fewer deductions in the future.

Bryan Miller, “thetaxguy”, writes freelance financial and tax-related articles, blogs at taxhelpforum, and is a Tax Specialist at the tax resolution and mitigation firm ASAP Tax Relief .

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