Archive for the ‘Common Questions’ Category

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Can You Really Pay the IRS Pennies on the Dollar?

Thursday, November 4th, 2010

Is it really possible to pay the IRS “pennies on the dollar” and have the rest of your tax bill forgiven?  Yes – it is possible…but it’s not very likely.  It’s called an Offer-In-Compromise – and it used to be the only legitimate way to negotiate an actual lowering of the amount of taxes owed to the IRS by a taxpayer…sometimes far less.

However, since the IRS has seen so much “abuse” of this particular method of tax relief in recent years, they have shown by their actions that they are less and less apt to accept an Offer-In-Compromise.

In a press release dated October 2004, the IRS stated “This program serves an important purpose. But we do warn taxpayers to watch out for unscrupulous promoters charging excessive fees to taxpayers who have no chance of meeting the program’s requirements,” said IRS Commissioner Mark W. Everson. “Taxpayers should not be duped by high-priced promises.” In fact, as of 2006, the IRS now rejects 85% of all Offers-in-Compromise.

Although an Offer-In-Compromise is one option for paying off IRS debt, it may not be the right option for you.  There’s no sense in pursuing this payment option with 15% success rate if there’s little hope that it will be accepted.

In fact, if you choose to hire a lawyer to represent you before the IRS, it’s critical that he/she is looking out for you and only wants the best outcome for your case.   Since the IRS only accepts 15% of Offers-In-Compromise, any good lawyer representing you must have full knowledge of all other options available through the IRS.  Plus, they would need to be able to thoroughly examine your case before they ever made a suggestion of the best action to take.

There’s also a new plan available: the new Partial Payment Installment Agreement (PPIA) enacted in January of 2005 is a form of payment that may allow you to pay off your taxes and have part of the debt forgiven.  With this new method, the IRS considers how much you owe before the 10-year statute of limitations runs out.

Legally, a tax professional can represent you to the IRS even if they live thousands of miles away from you.  But is that what you want when you’re dealing with something as stressful as IRS problems?

Or would you rather have someone who you can speak with face-to-face…who lives in your city…who has a reputation to uphold in your community?

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

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

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

Tuesday, 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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What If You Simply Cannot Afford To Pay The IRS?

Saturday, May 22nd, 2010

Even the IRS knows that you cannot pay taxes with money you don’t have.  You may qualify for “Non-Collectible” Status.

In fact, if you are deemed to be ‘Non-Collectible”, the IRS must immediately STOP taking your wages and get their paws out of your bank account.  All garnishments and levies must cease.

But understand…if you qualify for this “deal”…the IRS will eventually want their money.  They may give you 18 months to over 2 years to “catch up” on your finances – however, when you do, they will come looking for what they’re owed.

Plus, you will accrue interest during this time, so you end up owing more than you did originally. In fact, you must pay these future taxes in full, and on time, or you’ll blow it big time. If you neglect to pay your taxes for future years, or worse – you don’t file…the whole CNC deal is off.

If this happens, the IRS will come after all of the money you owe them, and they may use garnishments, levies, seizures, liens, and all of the “nasty” tactics at their disposal to get their money.

Still, upon hearing this, you may think this sounds like a “great deal” … but be warned: do NOT make the mistake of calling the IRS yourself, to see if you can qualify for non-collectible status.

Here’s why – the reasons that you give as to why you can’t pay them will NOT necessarily “line up” with their “definition” of not being able to pay. And if you make the mistake of letting  your financial “cat out of bag” to them – they will decide what you can and cannot pay.

You see, what you list to the IRS as being “ordinary and necessary living expenses” – causing you not to be able to pay…may not jive with what the IRS considers “ordinary and necessary”.

You could find yourself thinking that you were $100 “in the hole” every month – and by the time the IRS gets done looking at things from their perspective…they may determine that you can actually pay them $500 a month.

Now you’re on the hook for a monthly payment that you can’t afford…but the IRS “thinks” that you can pay it.  Not a good situation to be in.

This can happen if you don’t know what the IRS’ definition of “ordinary and necessary” is before you approach them. Don’t make this mistake.

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“Will The IRS Send Me To Jail???”

Saturday, May 15th, 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 You Cannot Be Sent to Jail.

If you’ve accurately filed your taxes, but you just haven’t paid the tax, you cannot get sent to jail.  Owing the IRS money is not considered a crime.

However, 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

If you’ve filed your taxes accurately, but you just can’t pay them…there is hope.

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.

1. Pay the tax

2. Be Declared Non-Collectible Status

3. An Offer in Compromise

4. An Installment Agreement

5. A Partial Installment Agreement

6. A Bankruptcy

You Can Go to Jail if You Haven’t Filed Your Taxes OR If You’ve Filed Your Taxes Inaccurately.

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.

If you haven’t filed your taxes, file them immediately.  Even if you don’t have one red cent to pay, file the taxes anyway.

The worst thing you can possibly do is to avoid taking action and act like it will go away.  You cannot qualify for any of the IRS payment plans if you have not filed your taxes.

However, by taking the correct action, you can avoid going to prison.  In fact, in most cases the IRS won’t even threaten prosecution if the non-filer takes steps to resolve the problem correctly.

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Recession Blues: Pay Credit Card Debt or Pay the IRS?

Sunday, April 18th, 2010

Gas prices have risen over 18% nationwide this year, and the average cost of food has risen by nearly 5%— yet personal income levels remain flat.

Add this to the fact that average American households with at least one credit card have debt of $9200 with high interest, and many families find themselves in a tough predicament.

With higher costs to pay and no increase in income, some Americans are starting to eye the 39% that Uncle Sam takes (on average) from their paychecks.

When the economy is bad, there’s a great temptation not to file taxes at all.  But that’s a decision that comes with a tremendous price down the road.

If you don’t file, interest is compounded daily on what you owe – the quarterly federal short-term tax rate, plus 3%.  As of this writing, the IRS is charging 8% per year.

Non-filers also pay a .5% late payment penalty plus a 4.5% late filing penalty, for a combined penalty of 5% for the first month your return is late.  Every month that you don’t file – your penalties double…until 5 months when it caps at 47.5% (22.5% late filing penalty + 25% late payment penalty). To put that in perspective – if you owe $10,000 and you don’t file, after only 5 months you could owe over $14,500 in taxes plus penalties!

By all means, file your taxes, even if you can’t afford to pay the amount due, because every day you don’t file you’re getting charged the huge non-filing penalty.  Even if you don’t pay what you owe, at least you can stop getting charged the Non-Filing Penalty, potentially saving you thousands of dollars.

And, by filing your taxes and not paying them, you’ll at least go from Non-Filing to Non-Paying status.  This will at least put you in the position to work with an IRS Relief Attorney and negotiate with the IRS to possibly lessen the amount 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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How much can the IRS actually take out of my paycheck?

Tuesday, March 2nd, 2010

In wage garnishment situations, the IRS has a table that they refer to (IRS Publication 1494) – that determines how much money they will leave in your paycheck per week. Many people believe that the IRS takes a certain percentage of your pay, which is simply not true.

The only factors that determine how much of your paycheck is left over for you and your family after a garnishment is your marital status, the number of exemptions that you claim and whether you’re 65 years old and/or blind.

For example, if you’re married and you file a joint return and claim 2 tax exemptions, the IRS will allow you to keep $336.54, regardless of how much you earn. It makes no difference if you make $500/week or $5000/week. You take home $336.54 and the IRS keeps the rest until your tax debt is paid off.

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Is it Possible to be Declared “Non-Collectible” Indefinitely?

Friday, February 26th, 2010

Being declared “Currently Non-Collectible” means that the IRS considers that your current financial situation makes it impossible for you to pay your taxes and they determine that they cannot collect the money from you…at least not for now.

So, in other words, being declared CNC is a potential short-term fix to your IRS problem. But, in the end, you may still have to pay the taxes you owe (plus penalties and interest) once you start making more money.

This assumes that someday you’ll be making more money than you’re making now…

The interesting thing about being declared Currently Non-Collectible is that it can last indefinitely.

If the IRS monitors your future W-2’s and sees that your income has not increased by 15%-20%, your Non-Collectible Status stays “current”.

The IRS usually gives you some breathing room and reevaluates your situation after 18-24 months. If by that time you’re showing positive cash flow, you may be put on a payment plan.

However, if you are declared CNC, it doesn’t get you off the hook for paying your taxes in future years. In other words, if you’re declared to be Currently Non-Collectible for the taxes due for years 2004-2006, you will still owe the taxes due for the year 2007, 2008 and so on.

In fact, you must pay these future taxes in full and on time or you’ll blow it big time. If you neglect to pay your taxes for future years, or worse – you don’t file…the whole CNC deal is off.

If this happens, the IRS will come after all of the money you owe them, and they may use garnishments, levies, seizures, liens and all of the “nasty” tactics at their disposal to get their money.

If you’re thinking “man, that sounds like it’s for me…I’m so broke it’s a joke. Surely I’ll be declared non-collectible”…don’t rush to the phone to call the IRS just yet.

You see, what you list to the IRS as being “ordinary and necessary living expenses” – causing you not to be able to pay…may not jive with what the IRS considers “ordinary and necessary”.

And guess who has the last word? The IRS, of course.

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