Posts Tagged ‘paying taxes’

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One Way to Get Out of IRS Debt…

Monday, June 20th, 2011

There are 6 ways to get out of debt with the IRS, and all of them, to a certain extent, may require legal help.

First, let’s discuss the most obvious way to get out of IRS Debt…

Pay the bill.

Now, before you think I’m just being simplistic, this really is an option that should be discussed. Before we get into the five other options (which I’ll discuss in detail in future), it’s important that we ask the simple question…

Is there any way that you could just pay the bill and get on with your life?” Before you immediately say “no”, read on.

Why Owing Credit Card Debt is Better Than Owing the IRS.

Don’t get me wrong – I’m not a fan of credit cards by any stretch of the imagination.

America’s credit card debt is staggering – $800 Billion in 2005, according to an analysis of Federal Reserve Board data by Demos, a national research and consumer advocacy group.

Some credit cards charge interest rates of 20% or more, and it’s “revolving door” credit…so if you only pay the minimum payment due, it often takes years, even decades to pay off the debt.

Plus, 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.”

What If I Don’t Have Enough Credit?  Now, if you’re reading this and you know darn well that you don’t have enough credit to pay off your IRS debt – then we need to consider your other options

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From Owing $10,000 to $15,600 in 5 Months?

Monday, June 13th, 2011

Do you have any credit cards that charge you 47.5% interest? If you answered “No ”…Don’t be so sure. ..you might end up paying the government this much in interest and penalties?

Did You Not File at All? If you didn’t file taxes this past year (or any other year for that matter), interest is being 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). 47.5%.

What You Should Do If You Haven’t Filed. By all means, file your taxes…even if you can’t afford to pay the tax that’s due. Here’s why: Every day you don’t file you’re getting charged the huge non-filing penalty I’ve described in the section above.

By filing your taxes and not paying them, you’ll at least go from Non-Filing to Non-Paying status. This will enable you to qualify for one of the 5 negotiating tactics:

-Be declared Non-Collectible Status

-Have the debt reduced through an -Offer In-Compromise

-Set up a monthly installment agreement plan

-Set up a partial installment agreement (where you pay less than the total owed)

-Declare Bankruptcy

 

If you don’t file your taxes, you won’t qualify for any of these ways to pay down your debt. You’ll be considered a non-filer.

Did You File and Not Pay? If you filed but didn’t pay the tax, that’s a little better, but don’t breathe easy just yet. If you don’t figure out a way to pay it soon, the IRS will start coming for their money in ways that you don’t want them to: like tax liens, wage garnishments, levies, and seizures. If you didn’t pay up, there’s interest being compounded daily on what you owe, which is the quarterly federal short-term tax rate, plus 3%. As of this writing, the IRS is charging 8% per year. That’s 11%. But remember that in addition to interest, you’re also being charged a Failure-to-Pay Penalty, which is .5% of the tax owed for each month. There is no maximum for the failure-to-pay penalty. If you’re sent a number of notices from the IRS and you still don’t pay, the penalty increases to 1%.

What You Should Do If You Filed and Didn’t Pay. The most obvious answer is to pay the debt. So what if you just can’t come up with the money? Here’s legal ways to negotiate with the IRS:

-Be declared Non-Collectible Status

-Have the debt reduced through an Offer-In-Compromise

-Set up a monthly installment agreement plan

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

-Declare Bankruptcy

All of these options have their pros and cons, and depending on your situation – one choice may be a lot better than the other.

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Have You Paid Your Payroll Taxes?

Sunday, January 30th, 2011

Take a guess…what do these business owners have in common?

* Chad Wetzel, owner and operator of a heating and ventilation company, Minneapolis, MN…

* Scott R. Lennander, owner of five Minnesota construction companies…

* Baxter Worth Paschal, Jr, Chiropractor in Charleston, NC…

* Eddie Ju Ling Ni, restaurant owner, Cleveland, OH….

All of them plead guilty to not paying payroll taxes to the IRS. In fact, 3 out of 4 of these men were sentenced to anywhere from 16 months to 72 months in prison for their crimes.   As you can see, not paying payroll tax is something that the IRS considers very serious…

Why the IRS Deals Harshly With Businesses That Don’t Pay Their Payroll Tax - As an employer, you are responsible for withholding part of your employees’ wages to pay their Income tax and FICA (Social Security & Medicare) tax. Since the employees place their trust in you that you are taking this money out of their paychecks and are paying these taxes with their money, they are called “Trust Fund Taxes”.  However, if for any reason you fail to pay this money – in the eyes of the IRS you have betrayed the “trust” of the employees and you have taken money that does not belong to you.  Therefore, the IRS can be particularly aggressive with businesses that don’t pay their payroll taxes.

The IRS May Try to Shut Down Your Business.  If you owe payroll taxes, the IRS may exercise their authority to collect by using the Trust Fund Recovery Penalty (TFRP) against you.  If it’s determined by the IRS that you are the responsible party for collecting the taxes, and you willfully failed to file them, you will be notified with the plan to assess the TFRP against you.  You will then have 60 days to pay the tax or appeal.

If you don’t pay the tax or appeal, the IRS may do everything in their power to get the money: 1. Seize your personal assets 2. Place a lien against your property, or worse…

Take Action Now Before It Gets Worse.  It’s tough running a business when you owe payroll taxes – like swimming upstream. You have to pay your suppliers – while still coming up with the tax money.  You must stay current with current payroll tax while you’re paying the old tax – and you can’t be late with the payments.  And through all of this, you have to figure out how to not go broke personally.  But, even though all of this is tough – consider the alternative. If you don’t take action and resolve your problems with the IRS, things can get very ugly.

Try not to forget about the real-life stories I described in the beginning of this article.  These are stories of real business owners who didn’t take action – not only did they lose their businesses…they went to prison and still remained responsible for the payroll taxes.

IRS payroll tax problems require serious intervention – call a professional.

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Am I Non-Collectable to the IRS?

Wednesday, December 15th, 2010

One way to get out of IRS debt is to be declared “Currently Non-Collectible” (CNC) by the IRS.  Note the term “Currently”…

As the name implies, 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 potentially short-term fix to your IRS problem.  In the end, you may still have to pay the taxes you owe (plus penalties and interest) once you start making more money.

The interesting thing about being declared Currently Non-Collectible is that it may 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…” 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. Your financial situation will be put under tight scrutiny.  Some of the expenses that you consider to be “ordinary and necessary” won’t fit the IRS definition of ordinary and necessary at all and will be rejected altogether.  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.

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Do You Know What You’re Paying in Penalties?

Friday, December 10th, 2010

             Penalties and interest add up by the day if you haven’t paid the IRS what you owe them.  And they add up big-time if you haven’t filed at all.  Every day that you put off taking care of your IRS problem only makes it worse.

             Did You File and Not Pay?

If you did, there’s interest being compounded daily on what you owe, which is the quarterly federal short-term tax rate, plus 3%.  As of this writing, the IRS is charging 4% per year.

In addition to interest, you’re also being charged a Failure-to-Pay Penalty, which is .5% of the tax owed for each month. There is no maximum for the failure-to-pay penalty. If you’re sent a number of notices from the IRS and you still don’t pay, the penalty increases to 1%.

What should you do if you filed and didn’t pay?  The most obvious answer is to pay the debt.  The IRS has more power to collect in ‘mean and nasty’ ways than any collection agency you’ll ever deal with.  So what if you just can’t come up with the money?  If you just don’t have the money, and you cannot get it, there are legal ways to negotiate with the IRS:

-Be declared Non-Collectible Status

-Have the debt reduced through an Offer-In-Compromise

-Set up a monthly installment agreement plan

-Set up a partial installment agreement (where you pay less than the total owed)

-Declare Bankruptcy

Did You Not File at All?  If you didn’t file taxes this past year (or any other year for that matter), you have bigger problems. You still have the interest that’s being compounded daily on what you owe – the quarterly federal short-term tax rate, plus 3%.  As of this writing, the IRS is charging 4% per year.  But the penalty gets really harsh for non-filers.  You pay the .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.

It gets worse: 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).  47.5%…Ouch.  That’s double what even some of the worst credit cards would charge.

What should you do if you haven’t filed? By all means, file your taxes…even if you can’t afford to pay the tax that’s due. By filing your taxes and not paying them, you’ll at least go from Non-Filing to Non-Paying status.

If you don’t file your taxes, you won’t qualify for any of these ways to pay down your debt.  You’ll be considered a non-filer, which is against the law, and could eventually be punished with jail time if you let it go.

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Capitol Hill Employees Owe $9.3 Million Worth of Overdue Taxes

Sunday, November 14th, 2010

The Internal Revenue Service recently released information that government employees on Capitol Hill owe overdue taxes worth $9.3 million, as part of the per agency IRS debt breakdown.  It is not clear whether there are some Congress members guilty of not properly paying their taxes, as the agency refused to specify those involved.

638 people, or around four percent of the 18,000 Capitol Hill employees, are included.  There is an average of $12,787 and $15,478 worth of unpaid taxes by offending taxpayers from the Senate and the Congress employees, respectively.

According to the Taxpayers for Common Sense Vice President Steve Ellis, the people of the Congress, including the staff members, have higher responsibility  in this matter because they write the laws and they are in public positions. Because of this, Rep. Jason Chaffetz of Utah filed legislation to release from service the people who are holding government office or jobs but also have tax issues. It has been co-sponsored by eight Republicans, although no Democrats signed on the bill,  saying that it would lessen the view of the government paying its employees.

Senator Charles E. Grassley of Iowa, who has authority over tax matters, said that it is indeed embarrassing for people in such positions to not follow the tax laws they themselves made.  Proper payment of tax is essential to promoting Democracy, so there is no excuse even though we are facing tough times, according to Mortimer Caplin, former IRS commissioner.

It has been noted that IRS debts have been increasing nationwide, which started even before the economic problems. At the end of 2009 alone, $103.2 billion worth of taxes have gone unpaid.  According to experts, this delinquency shows that the economic pressures are taking its toll on American families.

The fluctuating nature of workforce during change of dominance in political party may also be one of the reasons why there is an increase in overdue taxes.

Jock Friedly, who broadcasts the congressional wages on LegiStorm, may have an explanation.  Most of the new staff originally came from private companies where their earnings were much higher.  The reduction in their earnings has much impact on them, making debts pile up in the long run.

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

Monday, 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?

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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