Archive for March, 2010

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Temp Service In Jackson, TN Gets Rude Awakening

Wednesday, March 31st, 2010

If you think the worst thing the IRS can do is audit your business, you’re sadly mistaken.

Just ask Ethel Brooks, owner of Temp Owned Temporary Service in Jackson, TN.  On Tuesday 1/8/08, at 8:10 in the morning, IRS “CI” (Criminal Investigation) Agents jumped out of their black cars and SUV’s and blocked the front of her business.

Agents armed with guns and bullet-proof vests entered through both the back door and the front and removed two women from the building. One was immediately let go and the other had her car searched before being let go.

The business was closed for the day and by noon, agents were removing large plastic bags containing files.

Most people don’t know that the IRS has a special Criminal Investigation Unit and one of their main functions is to act as a fear tactic. I call them the “Men in Black”.

There are over 2,800 CI Agents worldwide who are trained to investigate criminal violations of the Internal Revenue Code.  CI’s Conviction Rate is one of the highest in federal law enforcement. In the fiscal year 2006, of the 2,720 people that CI recommended for jail time, 82% were sent to prison.

As you can see, if the “Men in Black” show up at your door, they mean business.

If you own a business and you haven’t filed your taxes, you’re tempting the IRS to place you under criminal investigation status and you’re risking a visit from the “Men in Black”.

If you believe you are at risk, the first thing you need to do is file your taxes, regardless of how much you owe.  Call a tax professional to help you.  Even if it’s been years since you’ve filed – it doesn’t matter.

Regardless of how bad you think your situation is, things can be worked out. By working with an IRS Relief Specialist, there’s a good chance that you’ll never even have to talk to the IRS and we may be able to negotiate a lowering of the taxes and/or the penalties that you owe.

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Can The IRS Take Your Social Security?

Saturday, March 27th, 2010

If you owe money to the IRS, and you are receiving Social Security benefits due to:

  • Federal Old-Age and Survivors Trust Fund (or)
  • Disability Insurance Benefits

The IRS can take 15% of your Social Security payments to satisfy your tax debt.

Prior to 1996, there was a $750/month “off limits” amount that had to be left for the Social Security recipient. However, that changed with the introduction of the Federal Payment Levy Program, which allowed for 15% of the total monthly payment to be collected – regardless of the amount.

However, benefit payments such as lump sum death benefits and benefits paid to children are not eligible. Additionally, Supplemental Security Income (SSI) payments, under Title XVI, and payments with partial withholding to repay a debt owed to Social Security will not be levied through the Federal Payment Levy Program.

How To Know if Your Social Security is About To Be Tapped by the IRS

The IRS must send you a “Final Notice – Notice of Intent to Levy and Notice of Your Right to a Hearing” form. At this point you’ll have 30 days to respond.

You have a few choices at this point – you can either:

  • Pay the tax
  • Negotiate an alternative payment method (payment plan, partial payment plan, Offer-in-Compromise)
  • Be declared non-collectible (hardship) status
  • File for an appeal
  • Ignore the Warning and do nothing

If you decide to do nothing and you don’t contact the IRS, after 30 days they will submit your levy to the Financial Management Service (FMS) and 15% of your Social Security will begin to be taken to satisfy your tax debt.

The levy will remain in effect until the tax is paid off, or until you make other arrangements.

If you’re counting on Social Security benefits to live, you can’t afford for the IRS just to waltz in and take 15% of your livelihood without a fight.

Depending on your situation, you may be able to qualify for a Offer-In-Compromise and end up paying the IRS significantly less than you owe.

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Posted in Common Questions | 4 Comments »

IRS’ Latest Tools Reveal Commitment to Pursuing Taxes of the Self-Employed

Wednesday, March 24th, 2010

In an ever-increasing effort to close the tax gap, the IRS has again shown evidence of their commitment to focusing on small business and the self-employed.

Their latest effort includes a website and a free bookmark that “are part of a year-long campaign to help educate business operators about federal tax responsibilities and filing Schedule C, Profit or Loss from Business forms” say IRS officials.

The “Self-Employed Individuals Tax Center” is a new section of the IRS.gov website that acts as a starting point for self-employed and small business owners.  The free laminated bookmarks offer a list of key search words to use when trying to locate specific information on IRS.gov related to being self-employed or small business.

Once again, with these latest tools, the IRS has shown that it is beefing up it’s pursuit of tax money from small business and the self-employed.

The IRS is looking for around $136 Billion to $158 Billion of “under-the-table” money – money that’s being made by sole proprietors, partnerships and S-Corporations that is not being reported as income. According to the IRS, “Most of the understated income comes from business activities, not wages or investment income.”

These latest IRS tools are a “nice” way for the IRS to help small businesses and the self-employed report their incomes accurately.  However, once the IRS is forced to step in and pursue their money, things might not be so nice.

By not taking action and facing an IRS debt problem, a small business owner or self-employed person could face wage garnishment, and/or seizure of real estate, Social Security benefits, 401(k)’s, IRA’s, Cars / Boats / Houses, Accounts Receivable, Cash Loan Value of Your Life Insurance or Commissions Owed to them.

If anyone suspects they are in trouble with the IRS, they shouldn’t wait until the IRS comes knocking at their door. However, in this situation, it’s a very bad idea to go it alone without legal help.

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Mannatech Salesman Sentenced for Tax Evasion

Sunday, March 21st, 2010

A Washington state man who sold health supplements for Mannatech Inc. has been sentenced to three years in prison for not paying the hundreds of thousands of dollars he owed in taxes.

Raymond J. Gebauer, 55, of Lake Sammamish, Wash., was sentenced for four counts of tax evasion, following his conviction in August 2007. He also was ordered to pay a fine of $48,251, as well as the costs of prosecution.

According to the U.S. attorney’s office, Gebauer earned $3.5 million in 1998 to 2001 but never filed any tax returns. Prosecutors said Gebauer “attempted to use a web of trusts and corporations to hide his income from the government”.

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Tax Avoidance vs. Tax Evasion… What’s the Difference?

Thursday, March 18th, 2010

Depending on who you ask, some people may say that tax avoidance is either “smart business” or it’s “immoral”.

But, if done correctly, there’s one thing it’s not…It’s not illegal.

There are numerous ways a person can decrease his or her tax liability legally:

- Claiming deductions

- Incorporating

- Setting up a charitable trust or foundation

More complicated and controversial methods include setting up a company, trust, or foundation in an offshore jurisdiction.

Tax evasion, on the other hand, is the willful act of misrepresenting financial information to avoid the tax liability. Common forms of tax evasion are understating income, wages, or gains on the sale of property, and/or overstating tax deductions.

What’s the Difference?

To keep it simple – think of it this way: Tax avoidance is maneuvering to avoid the tax liability in the first place. The tax does not exist, because in a legal sense, no income, profit, or gain ever existed.

Tax evasion is maneuvering to avoid the payment of a tax liability that has already been created.  The tax exists because the income, profit, or gain already exists.  To avoid paying the tax is a criminal act.

Why Would the Government Allow Tax Avoidance?

Obviously, no government could function if all its citizens legally avoided paying taxes.  While there are legal means of tax avoidance that every citizen has a right to put into practice, there are also “abusive tax avoidance strategies” the IRS warns against openly. These include:

- Anti-Tax Law Schemes

- Abusive Offshore Schemes

- Abusive Trust Schemes

- Misuse of the Disabled Access Credit

- Abusive Home-Based Business Schemes

- Employee Plans Abusive Tax Transactions

- Exempt Organization Abusive Tax Avoidance Transactions

The IRS tows a hard line with the promotion of Illegal Tax Schemes posing as Legal Tax Avoidance Strategies.

Tax Avoidance has always had its share of hucksters and scam artists who appeal to the “greed mechanism” present in some taxpayers by selling “get out of paying tax legally” kits and seminars.

Civil Injunctions are being charged against these con artists in an effort to stop these Illegal Tax Schemes. According to the IRS, in 2003, the government filed lawsuits to shut down 35 promoters of abusive tax schemes, and federal judges enjoined 28 promoters.

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Posted in IRS Education | 4 Comments »

What You Never Want To Have In Common With Will Smith

Monday, March 15th, 2010

In 2006, Will Smith starred in a movie called “The Pursuit of Happyness” – a true story about Chris Gardner, a man with a 5-year old son who ends up homeless on the streets of San Francisco.

Smith was nominated for an Academy Award and a Golden Globe Award for his part in this inspiring film, which tells with an unblinking eye the real-life story of a man’s struggle with a string of back luck coupled with questionable decisions.

One of the most poignant moments in the film is when Gardner (played by Smith), after being evicted from his apartment, finally sells one of the expensive pieces of medical equipment for which he and his former girlfriend had spent their life savings.

This breakthrough sale allows him to continue to pay for the hotel room where he and his son had been living…or so he thought. His joy quickly turns to horror as he realizes that the IRS has levied his bank account to satisfy a tax debt from the previous year.

As Smith’s character scrambles to call the IRS from a pay phone, he exclaims incredulously “You Can’t Do That!” Those are words that I hope you never have to say to the IRS.

You can hear the utter disbelief in his voice that any government agency could actually “hijack” a person’s bank account and take their money at will.

But that’s exactly what the IRS has the power to do – legally…

According to the IRS website,

“We usually levy only after these three requirements are met:

  • We assessed the tax and sent you a Notice and Demand for Payment;
  • You neglected or refused to pay the tax; and
  • We sent you a Final Notice of Intent to Levy and Notice of Your Right to A Hearing (levy notice) at least 30 days before the levy. We may give you this notice in person, leave it at your home or your usual place of business, or send it to your last known address by certified or registered mail, return receipt requested.”

The last thing you want to do is just sit there “frozen”, not knowing what to do once you receive a “Notice and Demand for Payment” or worse, a “Final Notice of Intent to Levy and Notice of Your Right to A Hearing”. If you’ve received either of these notices, the clock is ticking.

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Couple Sentenced on Conspiracy and Tax Evasion Charges

Saturday, March 13th, 2010

On November 16, 2006, in Erie, PA, Ronald J. and Carol A. Kapala were sentenced for conspiring to defraud the United States by impeding and impairing the lawful functions of the Internal Revenue Service.  Ronald Kapala was sentenced to 30 months in prison to be followed by three years of supervised release and ordered to pay a $100 assessment.   Carol Kapala was sentenced to three years probation and ordered to pay a $300 assessment.  According to the indictment, the Kapalas failed to file income tax returns from 1990 through 1998 and 2002 through 2004; attempted to conceal their construction business activity through the use of nominee names; disguised ownership of assets by transferring them out of their names; formed a bogus tax-exempt religious organization for the construction business in the name “Mission Builders,” and made fraudulent claims with the IRS concerning their obligation to pay federal income taxes.

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The Secret to Overcoming Fear of the IRS

Tuesday, March 9th, 2010

Ambrose Redmoon once said:

“Courage is not the absence of fear, but rather the judgment that something else is more important than fear.”

I understand that the IRS scares the pants off most people. That’s by design. The government wants you to fear the IRS and not be tempted to be lazy in paying your taxes.

But you cannot let fear of the IRS cause you to procrastinate or take the “head in the sand” approach.

The IRS is fully prepared and willing to use every collection method in the book to get their money once they’ve figured out that you owe them, including:

- Liens

- Wage Garnishment

- Seizure of bank accounts

- Seizure (and auctioning off) personal property

- Imprisonment

When you have the courage to stand up and face your problem, you have made the judgment that something else is more important than fear, like:

- Living a normal life where you are able to breathe easy, sleep at night, and not spend it looking over your shoulder wondering when the IRS is going to “jump out of the bushes”

- Knowing that you have the freedom to pursue your personal dreams & goals without the pressure hanging over your head that someday you’re going to have to “pay the piper”

- Keeping your marriage together without the burden of wondering if “today’s going to be the day” when the IRS finally catches up to you and throws a major wrench into your life

- Saving for the kid’s college, retirement, and other long-term goals without the worry that the IRS is going to come in and take it all out from under you

I’m not going to paint some rosy picture that facing up to your IRS problem and working out a solution is going to be pleasant.

But you must consider the alternative…

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Senate Puts Tax Cheat in Charge of IRS

Saturday, March 6th, 2010

Newly appointed Treasury Secretary Tim Geithner worked for the International Monetary Fund from 2001-2004, and was considered self-employed, or an independent contractor.

During that time he was expected to pay Social Security and Medicare taxes, just like any self-employed person would have to pay. He did not.

In 2006, he was audited by the IRS and required to pay back taxes of $17,230. Apparently he did not pay the correct amount of taxes owed the entire time he worked for the IMF.

However, it wasn’t until the vetting process from the Obama administration in 2008 that it was discovered that Geithner had also failed to pay taxes and interest for the years 2001-2002. He was then required to pay $25,970 to the IRS.

Later he also filed an amended return, paying an additional $5,566 in taxes and penalties for infractions including failing to pay an early withdrawl penalty from a retirement plan, and an ineligible charitable donation.

Obama Press Secretary Robert Gibbs made the following statement on his behalf: “The president-elect chose Tim Geithner to be his Treasury Secretary because he’s the right person to help lead our economic recovery during these challenging times.”

“He’s dedicated his career to our country and served with honor, intelligence and distinction. That service should not be tarnished by honest mistakes, which, upon learning of them, he quickly addressed. He made a common mistake on his taxes…”

So, I guess we should expect the man who is now in charge of the agency which is over the IRS to perhaps be a bit more understanding of others in his shoes? We’ll wait and see…

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Posted in Newsworthy | 2 Comments »

The Good News About Installment Payments and the Statute of Limitations

Thursday, March 4th, 2010

When it comes to making installment payments to pay off a tax debt, it used to be that the IRS wouldn’t agree to the arrangement if the taxpayer’s debt would not get paid off before the collection statute ran out.

So, in the past, if you owed $30,000 in back taxes (including penalties and interest) and you had 5 years (60 months) left on the statute, the IRS would only agree to allow a payment plan that paid off the full $30,000 in 60 months.

So, if you could afford it or not – you were stuck with a $500 monthly payment. But, thanks to Congress, this is no longer the case.

Code section 6159(a) now makes it to where the IRS must take into consideration your entire financial situation before deciding on an installment agreement.

So, in the situation just described, if it was determined that – considering your monthly expenses and income -  you could only reasonably be expected to pay $300/month, that’s what you would pay in a Partial Payment Installment Agreement.

(NOTE: with a Partial Payment Installment agreement, your finances will come under review every two years. If it’s determined at that time that you could afford to pay more than $300, your payment would be increased.)

Assuming your payment was not increased, after the 60 months of $300 payments, you’ve paid a total of $18,000…and then the statute of limitations runs out.

You no longer are liable for the rest of the $30,000 tax.  So, the statute in this instance worked to your advantage to the tune of $12,000.

There may be ways of approaching the IRS in a manner that can use the Statute of Limitations to your advantage.

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Posted in IRS Education | 1 Comment »

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