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Tax Relief: Failure to File Means Back Taxes Complications

April 30, 2010 By

Millions of individuals and business owners did not file their tax returns in time for April 15th. Research by the IRS proved it is common for taxpayers to have unfiled tax returns in years when there is a variation in status. Examples of changes could be divorce or death of a spouse. Taxpayers also refrain from filing due to weak finances or emotional turmoil. There are those who have no reason other than dragging their feet.

Regardless of why you didn’t file in time, you can still file your return. It will be late and you won’t get a refund but the grounds for filing are far better than for not doing so. There are important considerations if you choose not to file:

You may permanently lose out on a refund. The taxpayer entitled to a refund is not penalized. There’s no way to get a refund if you don’t file. You are at risk of losing a refund if you wait too long. Taxpayers have three years to claim a refund if a return is not filed.

Taxpayers who don’t have to file a tax return must still do so if they want the credit from Earned Income Tax. This is a federal income tax credit that is refundable and available to employed individuals and families in the low income tax bracket. In order to encourage work and to counterbalance the weight of social security taxes, the 1975 credit legislation was approved by Congress. A refund in tax is given to taxpayers who claim and are eligible for credit when the EITC is more than the taxes due.

It is only when a return is filed that IRS may evaluate and collect unpaid balances according to the Statute of Limitations.

The law does not allow a refund check once the Refund Statute has terminated. The application of credits together with overpayment of anticipated or withholding taxes to underpaid years. Once a deadline is missed a fine for not filing may be imposed. You have a better chance of coming to an agreement with the IRS to lessen the fine or penalty the sooner you file.

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Tax Relief: Wage Garnishment Lesson from Uncle Sam

April 29, 2010 By

An employee’s life can become a bad dream due to wage garnishment because it can result in your paycheck being drastically reduced. It is possible to sidestep a wage garnishment if you understand what it is.

A wage garnishment is used by the IRS to bring outstanding taxes to your notice. A specific amount of your salary is levied and garnished so that your penalties are paid. Before this is done the IRS sends you notification of what you owe and you have ten to thirty days to pay. Payment is dependent on the amount and the kind of tax. If you do not acknowledge the notification the IRS will send a final notice. If you still do not acknowledge the final notice the IRS will take action to a wage garnishment. The IRS will take up to seventy percent of your monthly salary. If you earn $3,000 you may give up more than half to the IRS. This carries on until you have settled your tax debts.

Once you are in such a situation it is very hard to get out. The objective of the IRS is to force you to pay your taxes. One the one hand, Uncle Sam wants to teach you a lesson so that you pay your taxes on time in the future and thereby avoiding the payment of penalties. On the other hand, you experience financial hardship while undergoing wage garnishment.

If you want to stop the wage garnishment process you are going to have to come to an agreement with the IRS to adopt a payment plan that allows you to pay your taxes and also pay your other bills. In certain instances you can settle the debt with an offer in compromise.

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Tax Relief: The IRS Can Seize Your Property

April 28, 2010 By

When your property is confiscated to fulfill a tax debt you owe, the action is called a levy. The seizure of property for that reason is a lawful action. A levy of this nature is not a lien. A claim for the purpose of providing security for a tax debt is a lien. It is a levy that is responsible for taking the property to pay the tax debt. Uncle Sam has the power to take your property and sell any kind of personal or real property you own or have a stake in, if you refrain from settling tax debt or contacting the IRS to make other arrangements to pay. The IRS may:

  • Confiscate and sell assets such as your house, car and/or boat
  • Levy property held by another person but owned by you e.g. cash loan value of your life insurance, commissions, wages, rental income, retirement accounts, bank accounts, accounts receivable and licenses.

The IRS can levy if three requirements exist:

  • A Notice and Demand for Payment is sent and your tax is evaluated
  • You did not pay tax or declined to pay tax
  • You were sent a Final Notice of Intent to Levy and Notice of Your Right to a Hearing also called a Levy Notice. This must take place thirty days prior to the levy. You may also be handed the notice personally, notice may be left at your place of business or home, or it may be sent registered or certified to your latest known address. A replacement receipt is necessary.

An IRS official may assess your situation or a Collection Due Process hearing in conjunction with the Office of Appeals at your request. A Collection Due Process hearing is filed with the IRS that is given on your notification. The following may be conversed:

  • You paid up prior to the sending of the levy notice
  • The IRS reviewed the tax and sent the levy of notice during bankruptcy
  • The IRS erred in the procedure of their assessment
  • The Statute of Limitations terminated prior to the sending of the levy notice
  • No chance for you to argue the evaluated liability
  • You want to talk about collection choices or
  • You want to present a spousal defense

At the end of a hearing the Office of Appeals delivers a resolution.

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Tax Relief: Imposed Action for the Collection of Taxes

April 27, 2010 By

Enforcement action can take the form of issue of a Notice of Levy. This is carried out on a salary and any additional income, bank accounts or property that is lawfully confiscated to fulfill the tax debt. Assessing a Trust Fund Recovery Penalty is on behalf of particular employment taxes that are unpaid. Issuing a Summons to a third party or directly to a taxpayer is carried out to acquire information to be used to get ready tax returns that are unfilled or to find out the capacity of the taxpayer to make payment.

It is important the taxpayer knows that to bring in illicit tax debts there must be specific federal payments (federal employee travel, vendor, federal salary, OPM and SSA) by the Department of the Treasury and Financial Management Service that may be incur a levy via the FPLP (Federal payment Levy Program).

Employees must understand what makes up employment taxes:

Quantity of social security tax and Medicare tax paid by the employer for the employee

Quantities that must be withheld by the employer from the employee for medical tax also known as withheld or trust fund tax

An employee may be held liable for the payment of extra penalties as well as interest if employment taxes are paid late. The extra penalties and interest is paid on balances that are overdue. FTD or Failure to Deposit could result in a fine up to fifteen percent on the overdue amount of tax that is late. The amount of the fine is based on the number of late days. It is possible the IRS may request, under penalty of prosecution, an employer initiates a bank account only for withheld amounts or that employment taxes be paid and filed every month instead of quarterly.

An employer can assist employees in keeping up with tax payment requirements by signing up and paying existing tax deposits via EFTPS or Electronic Federal Tax Payment System.

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Tax Relief: Taxpayers and Uncle Sam Can Come To an Agreement

April 26, 2010 By

An agreement between a taxpayer and the IRS that allows the taxpayer to pay less than what is owed in taxes is called an Offer in Compromise. Such an agreement can only passed by the IRS if extraordinary circumstances stop the taxpayer from paying in full or using an installment payment agreement.

RCP is reasonable collection potential. The amount that is presented by the taxpayer must be higher than or equal to the RCP. Value that can be appreciated from assets of the taxpayer (e.g. vehicles, bank accounts, real property and additional property) and likely future income without specific amounts permitted for basic living costs are all measured by the IRS to determine ability to pay.

There are three reasons the IRS will allow an OIC:

There must be doubt the taxpayer will ever have the ability to pay the total amount in the rest of the statutory time for collection. A possible scenario may be if a taxpayer accedes that a specific amount (e.g. $20,000) is owed. The monthly income of the taxpayer must be less than living costs, he must not own real estate property and there must be an inability to pay tax owed by means of monthly payments.

The accuracy of the evaluated tax liability must be in doubt. An offer to the IRS must entail – an error by the examiner in understanding the law; if doubt is present; if new evidence must be presented by the taxpayer e.g. if the taxpayer held a corporate position from the year 2004 to 2005. The corporation accumulated outstanding payroll taxes and the taxpayer was reviewed a trust fund recuperation fine due to accountable corporate practice. The taxpayer resigned 12-31-2005 i.e. before the review and was not informed there is legal doubt for an inaccurate reviewed/assessed tax liability

Consideration exists if there is an extraordinary circumstance that may permit an OIC by the IRS if doubt exists that the tax amount is inaccurate. A taxpayer who wants a concession for that reason must show the collection of tax would result in financial hardship or it would be unjust and unfair.

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Tax Relief: Tax Law Adjustments Benefit Your Pocket

April 23, 2010 By

It is time to get your Tax Form 1040 organized. Approximately forty percent of US taxpayers will file their tax return this month. There are adjustments to the tax law bringing down the amount you hand over to Uncle Sam and bringing you some tax relief.

Recently there were three adjustments/revisions to first-time and move-up homebuyer credits. The latest is most beneficial. The American Recovery and Reinvestment Act of last year mean tax owed can be brought down dollar-for-dollar. This is a money-back credit and you may be eligible for a refund even with a tax bill of zero. The first-time homebuyer’s credit was amplified to $8,000. Longtime residents with a minimum of five straight years prior to purchasing a new home, get up to $6,500. A property owner must qualify to receive credit.

New homeowners installing Energy Star rated units can get a tax credit of $1,500 when filing a return. For example, energy saving air conditioners and furnaces are eligible. This credit is available in 2010.

By returning a Schedule L you can claim for sales or excise taxes spent on new vehicles. This is possible even if you claim regular tax deductions. The new Schedule A will continue to be used for deductions by itemizers. Your deduction depends on earnings and cost of a new vehicle. A lot of people stand to benefit.

The American Opportunity Credit substitutes the Hope Education Credit. The AOC provides a student with credit of $2,500. You can include expenses for the first four years of post-secondary studies. It’s possible to get back a maximum of $1,000 without owing taxes because credit is refundable.

Those who lost employment the previous year and relied on unemployment reimbursements get the initial $2,400 free of tax. If both spouses lost their jobs and both received unemployment reimbursement each is entitled to $2,400 free of tax totaling $4,800 per married couple in 2009.

Americans who donated to the Haiti disaster have the opportunity of claiming the write-off on 2009 or 2010 tax return if itemized.

Claims for standard deductions carry more items and they must be accompanies with a Schedule L. The new items are:

Single filers – $500 and joint filers $1,000 for state or local real estate taxes

Form 4684 for net disaster

State or local sales or excise taxes for new vehicles

The above is in addition to the existing old items:

Heads of household – $8,350

Eligible widowers and widows and married couples filing a return jointly – $11,400

Singles and married individuals filing a separate return – $5,700

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Tax Relief: Uncle Sam Has No Favorites

April 22, 2010 By

Ordinary people have a hard time managing their taxes and so do celebrities. Of course, the difference between ordinary Americans and celebrities is the amount of cash involved. It’s not only the average American who makes use of installment agreements and payment plans to catch up on unpaid taxes. The rich and famous are also joining in. An example would be Ms Zsa Zsa Gabor. Uncle Sam made it clear even a former pinup actress could not get away with unpaid taxes in excess of $118,000. This shortfall came from 2001 and 2002. According to Ms Gabor’s advisers, the actress $7 million due to the Ponzi Scheme of Bernie Madoff and the tax shortfall is a spin-off. Ms Gabor and spouse are negotiating a payment plan with the IRS.

Political experts also use the paying off method to catch on their taxes. The Detroit News stated Ed Rollins had a lien filed against him by the IRS: $47,518 in September; $13,567 in May and $977,458 in March. He also had tax warrants filed against him by Oklahoma and New York. According to Ed Rollins he has negotiated an IRS payment plan, has already provided a ‘substantial portion’ towards his unpaid taxes and has settled his tax bill for New York. However, he will challenge the tax warrant from Oklahoma. His reason for the challenge will be founded on residency rights. State tax departments are becoming more aggressive about getting their tax share whether you live inside a border or not.

Whether you are rich and famous or a regular citizen you can and should make use of a payment plan if your tax bill is more than you can afford. You don’t have to take action only when collectors file liens against you. Uncle Sam will ask for a once of fee of $105 but if you pay by direct debit it will be lowered. Your unpaid taxes will accrue interest. The paying off of taxes is known as payment options/plans, installment agreements or payment agreements.

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Tax Relief: Left or Right You Must Return

April 21, 2010 By

Living in a location that gives you plenty to do is no excuse for ignoring an important issue like tax. All those taxpayers living in California have plenty of good wine, sand and sea to enjoy. Could this be the reason for so many ‘Golden State’ inhabitants turning their backs on tax returns? It has been noted that approximately two hundred thousand individuals eligible for paying tax in California did not file tax returns. This is the unfiled tax return figure, for the year 2003 and Uncle Sam is smiling.

As a taxpayer you may not be aware of what is being lost. By not filing two hundred thousand tax returns the IRS is sitting pretty with over $236 million. This state of affairs is not due to Californians alone. In total there are 1.75 million people around the US who did not file a tax return for 2003. California does have the largest number of non-filers. However, they are found in each state and also in a variety of military stations. This pushed up Uncle Sam’s total to around $2.2 billion.

It’s important for all non-filers to understand if you have unfiled tax returns then you don’t get refunds that you are entitled to. The only way you could rectify this situation was to take advantage of Federal Law. According to Federal Law a tax payer is permitted to file a tax return within three years from the time of the first filing close off date. This means the first close off date for 2003 was April 2004. If you did not file for old refunds by that date you will not get your refund; Uncle Sam keeps it all. Even if you do the paperwork; Uncle Sam gets an interest free loan for at least three years because you didn’t file a tax return.

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Tax Relief: IRS Speeds up Process to Help Cash Strapped Homeowners

April 19, 2010 By

Recently, there was a tax relief pronouncement made by the Internal Revenue Service. Cash strapped homeowners would be able to steer clear of a federal tax lien block refinancing of the sale of property or mortgages. This would be accomplished with the help of the Internal Revenue Service by speeding up the procedure for homeowners. If a federal tax lien is recorded when taxpayers want to refinance or sell a home, they do have choices.

A call from the taxpayer or a representative, such as a lender, to the Internal Revenue Service for a tax lien, secondary to the lien by the institution that is refinancing or reforming a loan, can be made. It is permissible for the Internal Revenue Service to receive a request from the taxpayer or a representative to release a claim if the property is for sale for less than the mortgage lien amount covered by special circumstances. Publication 784 contains the procedure to call for a release or discharge.

You can’t dispose of your property if a tax lien has been filed by the Internal Revenue Service. This applies to selling and refinancing. However, you are allowed to file a Certificate of Subordination of Federal Tax Lien. The taxpayer or representative must deliver a letter asking for subordination of the lien because there is no specific form for this purpose. All relevant documentation must be attached to the letter. It is possible that additional information may be requested. This could be in the form of appraisals and a list of your assets. It is the Technical Services Group Manager of the Internal Revenue Services who will determine the outcome of such a request from the taxpayer or the representative.

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Tax Relief: Are US Taxpayers Cheaters?

April 16, 2010 By

According to the outcome of the 2009 IRS Oversight Board survey about taxpayer attitudes, a higher percentage of people consider cheating Uncle Sam to be okay. To be accurate, they believe its okay to cheat just a little. It was also confirmed that a small number of people cheat compared to those who don’t. Of the respondents, only 13% were okay with misleading filing. The bottom line is 4% more people are currently cheating compared to 2008.

There is little doubt that a tough economy contributes to taxpayers trimming their taxes as much as they can. Finding tax relief legitimately is acceptable as opposed to tax avoidance. The harder it is to survive in a difficult economy the more tempted people are to cheat. This can happen to even the most well intentioned taxpayer. Often, this happens because of the complicated procedures that exist. There are laws that do allow tax relief. However, many of these laws are not only complicated but they also take up a lot of time. (Examples of such tax relief procedures are Schedules L and also Homebuyer Credit.) Such complications not only lead to the unpopularity of lawmakers but to taxpayers giving up and taking the easier and quicker option i.e. cheating. User-friendly procedures could help to lower instances of cheating.

To cut a long tax story short, 9% of survey participants were happy with cheating ‘a little here and there’ while 4% were blatantly supportive of cheating ‘as much as possible’ when filing tax returns. Uncle Sam should be pleased to know that 84% of survey participants expressed that it is ‘not at all okay’ to be a tax cheat. In a harsh financial climate this speaks volumes about the positive attitude of taxpayers experiencing difficulty coming up with the means to pay their taxes.

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