Do You Know WHEN the IRS Has the Option Of Sending You to Jail?

August 16th, 2010

One of the first things that people ask me after I hear out their IRS problems is…

“Well…what do you think? Is the IRS going to send me to jail?” That’s an easy question, really, because the answer only really has two criteria:

Did you file your taxes…or did you not file your taxes?

If you’ve accurately filed your taxes, but you just haven’t paid the tax, you cannot be sent to jail. Owing the IRS money is not considered a crime. But don’t break out the bubbly just yet…

Although jail time is arguably the worst thing that can happen, it’s not the only ‘punishment’ from the IRS that you should be wary of. By not taking action and facing your IRS debt problem, you could be looking into the ugly eyes of…

-Wage garnishment

-Seizure of your real estate

-Seizure of Social Security benefits

-Seizure of 401(k)’s, IRA’s,

-Seizure of Cars / Boats / Houses

-Seizure of Accounts Receivable

-Seizure of Cash Loan Value of Your Life Insurance

-Seizure of Commissions Owed to You

Not too pretty, is it? If you’ve filed your taxes accurately, but you just can’t pay them…there is hope for you.

There are six ways you can get yourself out of hot water, pay your debt to the IRS, and avoid the particularly nasty consequences mentioned above.

Not filing your taxes is considered a crime by the IRS. You can receive one year of prison time for each year that you don’t file. Procrastinating only makes your chances of doing jail time that much worse. The IRS doesn’t take kindly to those it has to “chase down”.…And they will eventually chase you down, trust me.

It doesn’t matter if it’s been a few years and it seems like you’ve somehow “slipped through the cracks”.  You haven’t.

Don’t believe that you can somehow get off “footloose & fancy-free” if you haven’t filed your taxes. Slipping through the cracks just doesn’t happen.

However, the more willing you are to face up to your problem and seek a solution, the more likely it is that the IRS won’t even threaten prosecution. Why go through life being paranoid, looking over your shoulder, wondering when the IRS is going to jump out from the bushes and finally “call in your chips”? Life’s too short to live this way.

Even if it’s been years since you’ve filed, you can get the IRS “monkey” off your back, once and for all…even if you feel your situation is hopeless. However, in this situation, it’s a very bad idea to go it alone without legal help. Chances are good if you waltz into an IRS office and try to work out a “deal”’, you’ll say something that you may regret later.

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Washington State Woman Sentenced for Failing to Pay Employment Taxes

August 10th, 2010

On December 18, 2009, in Seattle, Wash., Michelle L. Bielaski, of Bellevue, Washington, was sentenced to 15 months in prison, two years of supervised release, and ordered to pay $2,478,002 in restitution.  Bielaski pleaded guilty in June 2009, admitting that as secretary and treasurer of Falcon Construction, Inc., she failed to send to the Internal Revenue Service taxes that the company withheld from employee paychecks.  In her plea agreement, Bielaski admitted that the construction company had the ability to pay the withheld taxes over the years and in fact had paid salaries totaling approximately $3.9 million from 1998 to 2007.

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Who Would You Rather Owe… The IRS… Or a Credit Card Company?

July 19th, 2010

I don’t know your financial situation personally, but I would venture a guess that if you have problems paying the IRS…that you may have credit card debt problems as well.

So I certainly don’t mean to throw “fuel on the fire” of a debt problem by making the following suggestion, but I’ll throw it out there as an option and only you’ll know if it is a legitimate option for you.

Did you know that the IRS accepts Visa, Mastercard, & American Express?

With credit cards, according to the IRS website “you can pay current and past due Form 1040 balances along with current year Form 940 balances and current quarter plus the three prior quarters Form 941 balances.”

You may be thinking “isn’t paying the IRS with a credit card like robbing Peter to pay Paul?”

Not exactly.  First, you’re not “robbing Peter” in this scenario.  If you’ve been extended enough credit by your credit card company to pay off your IRS bill, it’s apparently because you have a good enough credit rating to justify the credit card company’s risk that you’ll pay the money back.

Now this is assuming that you tell the truth on your credit card application.  Remember…lying on a credit application is a criminal offense…don’t do it.

Now I’m not suggesting that you don’t pay your credit card bill.  But, if you’re unable to make your credit card payments, there are legal limits to what the credit card companies can do to get you to pay the money.  And “Paul” in this scenario (the IRS) has much more power than “Peter” (the credit card companies) does to get “his” money.

Think of it this way…a credit card company has nowhere near the power of the IRS to collect their money.  Not only can the IRS take your wages, but they can also take things like your real estate, Social Security, 401(k)’s, IRA’s, car, boat, house, accounts receivable, cash loan value of your life insurance, or commissions…to name just a few.

The IRS can also put a lien on your personal and investment properties, making it difficult to sell your house, destroy your credit rating and make it difficult to refinance or get a home equity loan.  Of course, the “big hammer” of the IRS is that they can actually send you to prison for not paying your taxes.

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Will I be Held Liable for my Spouse’s Misrepresentation?

July 14th, 2010

If a spouse (or ex-spouse) improperly reported joint taxes, will both parties be held liable for the tax, interest and penalties?

Thankfully, the IRS has a solution for this scenario.  It’s called the “Innocent Spouse Doctrine”.  The IRS website states that: “By requesting innocent spouse relief, you can be relieved of responsibility for paying tax, interest, and penalties if your spouse (or former spouse) improperly reported items or omitted items on your tax return.  Generally, the tax, interest, and penalties that qualify for relief can only be collected from your spouse (or former spouse).  You must meet all of the following conditions to qualify for innocent spouse relief:

1.      You filed a joint return which has an understatement of tax due to erroneous items (defined below) of your spouse (or former spouse).

2.      You establish that at the time you signed the joint return you did not know, and had no reason to know, that there was an understatement of tax (See Actual Knowledge or Reason To Know, defined below).

3.      Taking into account all the facts and circumstances, it would be unfair to hold you liable for the understatement of tax.

Erroneous items are either of the following: 1) Unreported income.  This is any gross income item received by your spouse (or former spouse) that is not reported.  2) Incorrect deduction, credit, or basis.  This is any improper deduction, credit, or property basis claimed by your spouse (or former spouse).”

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IRS Files $300K in Liens on Idaho State Representative

July 8th, 2010

On Monday, June 14th, the IRS filed $300,000 in tax liens against Rep. Phil Hart, an Idaho state representative.

Hart refused to pay taxes between the years of 1996 to 2003, saying he believes the income tax is unfair, and a misinterpretation of the constitution.

He has piled up $90,000 in unpaid taxes and penalties. The IRS has filed liens on property rights belonging to Hart, for unpaid balances totaling $257,947.

Hart said on Monday, “I think as long as I’m engaged in the process (I’ll be all right),” although he admitted the liens had him worried for his estate and his business, Alpine Engineering.

Hart has paid roughly $104,000 in state and federal taxes since 2006. Although he still believes it’s an “inefficient tax”.

His beliefs have led to working on House Bill 454, to eliminate taxes on wages, salary and investment income, and increasing the sales tax.

He said, “I would very much like to have a hearing in the next session.  I think in this economic environment we’re in, whether outside of the fact I have this litigation issue going on, I think we really need to be talking about our tax system.”

He sued the IRS in 1996 and stopped paying his taxes, contending that income tax was unconstitutional.  A federal judge ruled against him in 2000, and the U.S. Supreme Court refused to hear the case.

Hart serves on the states’ House Revenue and Taxation Committee. Some of his fellow Republicans are concerned that Hart’s beliefs may affect his ability to serve in this capacity.

“Ordinary citizens don’t have that same opportunity to influence policy that might affect them,” says Sen. Mike Jorgenson.

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What Happens If You File Taxes—But Don’t Get Around To Paying Them

June 23rd, 2010

Back taxes are simply taxes that you owe that you didn’t pay when they were due.

If you’ve underpaid taxes for any reason, the balance that you owe is considered back tax.

If you fail to report taxable income (intentionally or unintentionally, it doesn’t matter) – as the IRS sees it – you still owe them money in the form of a back tax.

Some people don’t have the money when the tax bill comes around, so they just don’t pay.  They may plan on paying the money when they’re able…but that time never seems to come around.

If nothing seems to happen or they don’t get ‘caught’, some people start believing that they’ve somehow slipped under the radar of the IRS and that they’re getting away with it.  They’re not.  In fact it, might take years for the IRS to come after you, but they will eventually.

You will know  if your back tax problem is serious if  the IRS sends you  a Notice and Demand for Payment.  At this point, you pay the tax, or you don’t.

If you don’t pay, at least 30 days before the first levy, you’ll be sent a Final Notice of Intent to Levy and Notice of Your Right to a Hearing.

If you receive the Final Notice of Intent to Levy and Notice of your right to a hearing, then you know you’ve got big problems.  Because that means in 30 days, the IRS will start helping itself to the money in your bank account.  If you’ve received a Final Notice of Intent to Levy, you need to take action immediately.

If this happens, there’s absolutely no time to waste. You must get help. There are a number of solutions that can keep the IRS from dipping into your bank account:

* You may have some deductions coming to you that you didn’t claim

* The IRS may have miscalculated your tax

* I may be able to negotiate a legal extension to the process

* The IRS may reduce your debt through an Offer in Compromise

* You Could Set up a monthly installment agreement plan

* You Could Set up a partial installment agreement (where you pay less than the total amount owed)

* You may declare bankruptcy, depending on your situation

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IRS Going After Independent Contractors

June 18th, 2010

As part of the ongoing hunt for more tax revenue, the IRS and state agencies have redoubled efforts to track companies misclassifying permanent workers as freelancers.

Over the past decade, the size of the average small business has fallen, indicating the use of more freelancers.

In February, the IRS launched a 3-year program to look into the hiring practices of 6000 companies to find misclassified workers violating the tax code.

President Obama’s proposed 2011 budget includes a budget to add 100 new federal employees to pursue such cases. Plus, it would repeal a 32-year old rule allowing companies such as healthcare and construction industries  to legally classify long-term workers as freelancers.

This move comes as the IRS has picked up overall scrutiny of small and medium-sized businesses, increasing by 30% the hours spent auditing companies with less than $10 million in assets.

Although the IRS denies an official focus on small business, some tax experts believe such a move makes sense.  Dean A. Zerbe, a managing director of alliantgroup, a Houston tax consultancy says “The IRS believes smaller businesses are more likely to evade taxes, it’s also easier and quicker to audit smaller businesses”.

So what is an Independent Contractor? The IRS says “People such as lawyers, contractors, subcontractors, and auctioneers who follow an independent trade, business, or profession in which they offer their services to the public, are generally not employees. However, whether such people are employees or independent contractors depends on the facts in each case. The general rule is that an individual is an independent contractor if you, the person for whom Statutory Employees the services are performed, have the right to control or direct only the result of the work and not the means and methods of accomplishing the result.”

I guess we shouldn’t be surprised that nobody seems to know the difference…

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Can The Local IRS Taxpayer Assistance Center Help Me with my IRS Problem?

June 15th, 2010

Between July and September 2002, the Department of the Treasury conducted a study where they had investigators posing as common taxpayers call the IRS Taxpayer Assistance Centers for help.

* Auditors were given correct answers 57% of the time

* 45% of the questions were answered correctly AND completely

* 12% of the questions were answered correctly, but incomplete

* Wrong answers were given 28% of the time

* 12% of the time, questions were unanswered and taxpayers were told to do their own research

* 3% of time, auditors could not get any assistance at all

It’s ridiculous that a taxpayer might not be able to count on getting a right answer from the IRS regarding tax questions, especially considering that the IRS is the agency that is charged with the task of enforcing tax laws.  Ask yourself … if the IRS Taxpayer Assistance Center cannot correctly answer simple tax questions more than 57% of the time, do you think that they are going to be able to answer a question about a complicated matter such as a lien on your property … the Statue of Limitations … bankruptcy … or other complicated legal matters?

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Learn From This Man’s Mistakes!

June 11th, 2010

I often wonder how a person gets to the point where they’re running from the IRS.  I’m sure that most people don’t start off in business saying to themselves: “I’m going to start a business and defraud the government out of tax money”.

But yet, over time, it still happens.  Consider this True Story, from the IRS Website:

“On April 25, 2006, in San Francisco, CA, Lee Nobmann, the CEO and owner of Golden State Lumber (GSL), was sentenced to 15 months in prison, fined $40,000 and ordered to pay $330,000 in restitution.

Nobmann pleaded guilty on Dec. 8, 2005, admitting that he had his company pay for his personal expenses and deduct the funds as the company’s business expenses from 1996 to 2000.

Nobmann also acknowledged that he received rebate checks from vendors and deposited them into his personal bank account and did not report the payments as income for the company or as income on his personal income tax returns.”

I don’t have any inside information about this case.  All I know about it is what you just read. But still, reading stories like this always makes me wonder what happened over the 4-year period from 1996-2000, when this man started having his company pick up his personal expenses and claiming them as business expenses.

Did he not know that he was making a big mistake?  Did the Chief Financial Officer try to warn him about this from the beginning?

When he started depositing checks into his bank account from vendors into his personal account…did he think that he wouldn’t get caught?

5 Years Go By…I Wonder If I’m Going to Get Away With It?

The other interesting thing about this case is that it says he was sentenced to prison in 2005 for something that happened from 1996-2000. Five years go by…seems like a long time.

I wonder what he was thinking from 2000 until 2005? He had 5 years where he knew he had defrauded the government out of tax money … but yet he was still a free man. Did he think he was going to get away with it?

Was he constantly looking over his shoulder, wondering if the IRS was going to “jump out of the bushes?”  Did he ever read a blog like this one – encouraging him to do the right thing … before it’s too late? So if he was being warned, why did he ignore the warnings?

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Can the IRS Really Shut Down a Business?

June 7th, 2010

In short…you betcha. Let’s take a look at a real-life example:

According to IRS records, an auction was held at Mangia Bev Italian Restaurant on 7/18/07, where “the property described below has been seized for nonpayment of internal revenue taxes due from Taxpayer”:

“Contents of restaurant, including but not limited to: refrigerators, freezers, fryer, ovens, tables, chairs, patio furniture, patio umbrellas, patio heater, water fountain, metal racks, fryer, warmer, stainless steel sinks, Panasonic televisions, folding tables, skillets, bowls, glassware, plates, flatware, microwave, pictures, prep stations, tools, Radiant Systems Point of Sale computer equipment and much, much more.”

I don’t know who the owners of the Mangia Bev Italian Restaurant were.

If they were anything like independent restaurant owners I’ve known in the past, I’m sure when they started they had high hopes for the future.

They may have dreamed of opening multiple locations and eventually reaping the benefits of being successful business owners in the United States.

Restaurant work is hard work with long hours, late nights and virtually no weekends off.  Most restaurant owners I’ve known are “jacks of all trades” who will do every job in the place, including washing the dishes if the dishwasher doesn’t show up.

After all that hard work, imagine what it would be like to sit and watch the IRS come in shut down your restaurant.

I wonder what happened along the way that lead to this?  Restaurant mismanagement?  Perhaps a divorce?  Sickness in the family?  Who knows?

Either way, eventually something happened that made it difficult for them to pay their bills.

Maybe they started having to juggle payments to food vendors and the owners may have even stopped taking a paycheck.

But, if they ever made the fatal mistake of non filing payroll taxes…it may have led to a very quick and decisive response from the IRS.

When it comes to payroll taxes, the IRS doesn’t mess around.

Regarding unpaid payroll taxes, the IRS makes it very clear:

“Caution:  Once we assert the penalty, we can take collection action against your personal assets. For instance, we can file a federal tax lien or take levy or seizure action..”

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