Glossary Of Tax Related Items To Be Aware Of
OFFERS IN COMPROMISE
Taxpayers who find themselves with an IRS tax liability which they cannot afford to pay should consider filing an Offer in Compromise. WE prepares the Offer in Compromise from your information and negotiates with the IRS to have them accept the lowest amount possible as full and final settlement for all taxes, penalties and interest. The Offer in Compromise program allows taxpayers to get a fresh start. All back tax liabilities are settled with the amount of the offer. All federal tax liens are released upon IRS acceptance of an Offer in Compromise. The IRS looks at the taxpayers current financial position and considers their ability to pay and their equity in assets. Based on these factors, an Offer amount is determined.
UNFILED TAX RETURNS
Many taxpayers fail to file required tax returns for all types of reasons. The taxpayer must be aware that failure to file tax returns may be construed to be a criminal act by the IRS. This criminal act is punishable by one year in jail for each year not filed. Needless to say, its one thing to owe the IRS money but another thing to potentially lose your freedom for failure to file a tax return. The IRS may file "SFR" Tax Returns for you. SFR stands for Substitute For Return which essentially means that this the IRS version of some unfiled tax return. SFR returns are filed in the best interest of the government which means that the only deductions youll see are standard deductions and one personal exemption. You will not get credit for deductions which you may be entitled to including exemptions for spouses, children, interest on your home, taxes on your home, cost of any stock or real estate sales, business expenses, etc. Regardless of what you have heard, you have the right to file your original tax return no matter how late its filed. The IRS may not accept it initially but, with proper negotiation, they will accept it and adjust any SFR return they may have filed for you. WE prepares old unfiled taxes and often file returns for which the IRS has already prepared SFR returns. WE have been extremely successful in having the IRS accept very late original filed tax returns and reducing the amounts owed on any SFR returns to the correct amounts owed.
FREEDOM OF INFORMATION REQUESTS
WE represents many taxpayers who, for whatever reason, find themselves at odds with the IRS. Many times these taxpayers just want to know what is in the IRS files without drawing a lot of attention to themselves. Congress passed legislation that requires government agencies, including the IRS, to disclose information to taxpayers if they are properly requested. WE regularly makes Freedom of Information requests from the IRS for such things as IRS audit files and workpapers, collection activity files, and IRS transcripts for individual and business master files. The documents requested are usually critical in helping taxpayers end their IRS problems. These Freedom of Information documents can provide details of why, how, when, and where IRS problems started. Having this information is helpful as it discloses the IRS information used to assess taxes, penalties and interest against the taxpayer. This is very useful in overturning IRS assessments for a variety of reasons.
IRS LIENS AND LEVIES
The IRS can make your life miserable by filing federal tax liens. These tax liens are public record that you owe various taxes. They are filed with the County Clerk in the county from which you or your business operates. An IRS levy is the actual action taken by the IRS to collect taxes. For example, the IRS can issue a bank levy to obtain your cash in savings and checking accounts. Or the IRS can levy your wages or accounts receivable. The person, company, or institution that is served the levy must comply or face their own IRS problems. The additional paperwork this person, company or institution is faced with to comply with the levy usually causes the taxpayers relationship to suffer with the person being levied. Levies should be avoided at all costs and are usually the result of poor or no communication with the IRS. The levy can be released by negotiating with the IRS and one should not consider it the only way to pay the IRS after it has been issued.
PAYROLL TAX PROBLEMS
The IRS is very aggressive in their collection attempts for past due payroll taxes. The penalties assessed on delinquent payroll tax deposits or filings can dramatically increase the total amount owing in a matter of months. We believe that it is critical to have a CPA represent taxpayers in these types of problems. How you answer the first five questions asked by the IRS may determine whether you stay in business or are liquidated by the IRS. WE can provide you a game plan for repayment of these taxes and negotiate with the IRS to avoid bank levies and asset seizure.
SEIZURES, WAGE GARNISHMENTS
The IRS has broad powers when it comes to seizure of assets. These powers allow them to seize personal and business assets to pay off outstanding tax liabilities. Taxpayers usually have been avoiding the IRS before the IRS actually resorts to seizure activity. The IRS attempts to collect amounts owed to them and a seizure is the ultimate act in their collection efforts. When a taxpayer is threatened with seizure of assets, the IRS will drop the threat if it receives full payment of taxes, penalties, and interest. The IRS wage garnishment is a very powerful tool used to collect taxes owed through your employer. Once a wage garnishment is filed with an employer, the employer is required to collect a large percentage of each paycheck that would have otherwise been paid to the employee and will now be paid to the IRS. The wage garnishment stays in effect until the IRS is fully paid or until the IRS agrees to release the garnishment. We can be retained to negotiate the release of IRS wage garnishments by arranging a payment plan. The payment plan negotiated by us can be more favorable than any IRS wage garnishment. It may allow you to receive your whole paycheck without fears of future wage garnishments.
The IRS can audit you by mail, in their offices, or in your office or home. The location of your audit is a good indication of the severity of the audit. Typically, correspondence audits are for missing documents in your tax return that IRS computers have attempted to find. These usually include W-2s and 1099 income items or interest expense items. This type of audit can be handled through the mail with the correct documentation. The IRS office audit is usually with a Tax Examiner who will request numerous documents and explanations of various deductions. This type of audit may also require you to produce all bank records for a period of time so that the IRS can check for unreported income. The IRS audit schedule for your home or office should be taken more seriously due to the fact that the IRS Auditor is a Revenue Agent. Revenue Agents have much higher education levels and receive more training and auditing techniques. All IRS audits should be taken seriously as they often lead to other tax years and other tax deductions not originally stated in the audit letter. We represent taxpayers regularly in all types of audits by using the same basic technique: We perform a trial audit in our own office before the actual audit to determine all of the facts. This trial audit often discloses missing information or documentation. The early detection of problem areas in an audit allows us to help the taxpayer in locating additional documentation that will be critical in proving a valid deduction. Any audit for which we are retained will take place at the IRS office or at our office, but never at the taxpayers home or office. We never take a taxpayer to the audit. The IRS will often ask to interview the taxpayer but we will politely decline the offer. We believe that we can explain the taxpayers records better than the taxpayer. The fact that WE have reviewed all records previous to the audit usually results in a favorable IRS audit report.
PAYMENT PLANS WITH THE IRS
The IRS will always accept some type of payment arrangement for past due taxes. The criteria for obtaining this type of loan with the IRS is: - You must be current with all tax return filing requirements - You will need to disclose all assets owned including bank accounts - You must not have adequate cash available in a checking, savings, money market, CD or brokerage account - You must not have the capacity to borrow the amount owed to the IRS from other sources (i.e., a second mortgage on your home) - You must not have adequate equity in a retirement account from which you can borrow or liquidate; for example, IRAs or 401Ks. Assuming that you comply with the above list, then you can proceed to arrange a repayment of taxes with the IRS. The negotiation with the IRS will either take place over the phone with ACS (Automated Collection System), or in person with an IRS Revenue Officer. The dollar amount owed usually dictates with whom the negotiations will be handled. Typically, Revenue Officers are not involved in amounts owed which are less than $20,000. The IRS will ask you to complete a personal financial statement, and if a business is involved, then you will need a business financial statement. The IRS has determined actual and local allowable monthly expenses for individuals which will be matched against your monthly expenses. The difference in your monthly income and the lower of your monthly expenses or the IRS allowable expenses will be the amount which the IRS will want you to pay on a monthly basis until all outstanding tax liabilities are paid in full. Please be aware that the IRS continues to accrue penalties and interest while you are making monthly payments. This may cause you to be paying what you consider a large monthly payment to the IRS and the outstanding balance may in fact be increasing due to additional penalties and interest. The IRS does not explain this to you. Taxpayers that retain us to negotiate payment arrangements with the IRS are informed on the actual accrued penalties and interest. We explain to the taxpayer what amount should be paid monthly versus a typical IRS repayment arrangement where the outstanding balance increases.
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