Posted by LWM Team on Wed, Sep 08, 2010
Advising Tax Clients to Form S Corporations to Lessen Chance of IRS Audit
It is usual for business proprietors and their consultants to give thought to which kind of business to choose because of the high possibility of being examined by the IRS. This is borne out by the audit statistics (schedule C) returns provided by the IRS. The statistics show the IRS doesn’t audit S Corporations as much.
However, there are some individuals who are saying it appears to be an infringement of Circular 230 if a tax consultant informs a taxpayer to manage within the S Corporation kind of business due to fewer audits than sole proprietorship.
This comes as a complete surprise because if you carry out a simple online search it reveals a long list of tax consultancies telling taxpayers to do just that so they can avoid an IRS audit.
If you investigate further, you will find no trace of such an IRS rule. If you carefully scrutinize Circular 230 and also the AICP Standards of Tax Services there is nothing about such an infringement. It is not going against the grain or unethical for tax consultants to tell taxpayers to incorporate so they have little chance of an IRS audit. Those who do are simply telling their clients the truth.
There are good reasons for a business owner to opt for fewer audits. An IRS audit is known to be nerve-racking, distracting and it entails the revelation of personal and sensitive data. An IRS audit takes up a great deal of time that many businesses want to avoid. These are all very reasonable considerations that show not every business that wants to avoid an IRS audit is out to hide an underhand act.
Posted by LWM Team on Wed, Sep 01, 2010
Circumstances That Qualify You For An IRS Bank Levy Release
To get IRS bank levy release relief, you should first note that there are two main ways to be released from a bank levy: if the levy has been paid off – meaning you are no longer in debt to the IRS or if the statutory collection period for the levy has expired. In the later case, if the issue of levy has been served before the end of this expiration period, you will still have to pay – you will only be released from paying the bank levy if you are not served the levy within the statutory collection period.
However, you can get relief from a bank levy in certain other circumstances. IRS bank levy release help can be accomplished if paying off the levy will result in some kind of economic hardship. “Economic hardship” is defined based on the minimum income an individual needs for their basic needs of food, shelter, bill payments etc. If it is determined by the IRS that you will be unable to provide for your basic needs, the levy will be cancelled.
One of the most common methods of getting IRS bank levy release is by making an installment agreement with the IRS. You may wish to do this if you owe a lot, i.e. if you owe more than you have or if you don’t have sufficient amount of income. The amount you will have to pay per installment can vary, but installment agreements are a very good way to get a bank levy release as they can really take the strain off your finances.
Posted by LWM Team on Tue, Aug 31, 2010
How To Get A Wage Garnishment Release
One of the most common types of enforcement the IRS uses to collect back taxes from you is a wage garnishment. You'll first receive a letter in the mail that shows you how much will be garnished per paycheck. The average amount is a whopping 25%. With the price of renting a home, utilities, paying for a car, and other needed expenses, you may need a wage garnishment release to be able to continue your life as usual without having to make major changes or get yourself into debt in some other area such as your credit.
A wage garnishment release can happen in quite a few ways. Naturally, when you pay it off, it will stop but you can also have a wage garnishment release by:
- Proving the garnishment is giving you financial difficulties.
- Showing the IRS you can pay off your debt in a more efficient way.
- Already having an installment agreement with the IRS.
These are the most common ways to get a wage garnishment release but it can be quite difficult to get some of them going by yourself. Talking to the IRS can be difficult and intimidating for a lot of people so your best bet is to find a tax attorney who can handle things for you.
The worst thing you can do is furthering your debt by using small loan services every few months to help keep your finances where they should be while this garnishment is in effect. This is just a temporary “band-aid” for your finances and after a few months, the interest from these small loans may end up worse than the garnishment itself. If you feel like you have the knowledge to do it yourself, you can visit your local IRS office and get all the proper forms but if you get denied, you will need additional help.
Posted by LWM Team on Wed, Aug 25, 2010
IRS Tax Audits Are The Rise
None of us can be certain the IRS won’t call after taxes have been filed. The fact is, audits are going up every year. The IRS wants to improve ways to catch delinquent taxpayers. $400 million is set aside for IRS enforcement of tax in 2010. Notifications of audits are sent out eighteen months following the filing date. An audit this time round is due to your 2008 tax returns.
It is to your benefit to take action as soon as you are aware of a tax difficulty. You have thirty days following a first notification to respond to the IRS. If you don’t reply within the thirty days, substantial tax penalties will be issued to your account by the IRS collections department. In the event that the thirty day grace period is insufficient time to sort out your affairs, apply for a postponement. Normally, the IRS will be amenable if you have to find relevant records.
An audit can become complicated for the average taxpayer. It does help your case to have the assistance of a certified tax professional to guide you through all the twists, turns and demands of an IRS audit. They may request complex documentation that needs specialized help. In the case of a person to person meeting with the IRS the tax professional will represent your case and avoid unnecessary mistakes.
It is important to understand that an in-person meeting with the IRS for the purpose of an audit is like being in a court of law. ‘Anything you say can and will be used against you in a court of law’- this is not an exaggeration and you may even end up being accused. It’s advisable not to say anything and leave it to the tax professional representing you.
If you are not satisfied with the auditor’s conclusion, you may ask to speak with their supervisor and request an appeal. The IRS will comply only if they see they can’t win in court. However, there is no point in using the legal system for an amount under $10,000.
Posted by LWM Team on Thu, Aug 19, 2010
There Is No Need To Fear Uncle Sam
Even the most diligent taxpayers find the IRS intimidating. It would be hard to find someone who isn’t distressed when receiving a letter from the IRS with their name on it. Many taxpayers play the ‘if I don’t see it, I won’t have to deal with it’ game. However, this is the completely wrong approach to IRS letters. No matter how negative you may feel, you must open and read the letter.
A letter from the IRS is not going to disappear just because you avoid opening it. The IRS will have it on record and you must respond. If you get a certified letter you must collect it from the post office.
It is possible your IRS letter is really a Final Notice of Intent to Levy. In this situation, an ignored notification will result in the IRS coming to seize your property. However, if you open the letter and then make contact with the IRS you are entitled to halt the collection. An arranged meeting with an IRS appeals agent allows you the opportunity to put forward your case for resolution.
The letter could be an enquiry if you did not file. Silence from your side gives the IRS the right to request an estimate return. The amount owed will be higher. This is the amount the IRS will collect. On the other hand, if you are owed cash and you don’t reply you won’t get the money.
A letter could be informing you of an audit. Whether you owe money or not, a lack of response will ensure you keep getting collection letters from the IRS. Having to halt the collection process and reopen an audit is complex.
If you continue to disregard IRS letters, penalties and interest will continue to increase over time. Your initial amount becomes twice as much every five years.
The best attitude towards a letter from Uncle Sam is to view it as an opportunity to either solve tax problems or bring in money owed to you.
Posted by LWM Team on Wed, Aug 18, 2010
Can Your Tax Story Win Against the IRS’?
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Many taxpayers have experienced their innocent spouse claims, collection appeals and tax returns disappearing. They find out, when they are informed, they were never processed. The only explanation is they were lost. When this happens it is very hard to convince the IRS you really did send it and they have misplaced it. The IRS expects you to show them proof of that filing.
In order to protect yourself against this kind of situation you must know the safest way to file.
Do not mail your tax appeal, return or request. Take it personally to your IRS walk-in meeting point. Make sure you also have a copy in your possession. Request the IRS official to date stamp the copy as proof of receipt when you file the original.
If you have multiple unfiled returns, do not place all in a single envelope. Place each one in its own envelope. By doing this you are raising the chances of each return being processed through the system—4 out of 5 returns being processed is better than none.
It is common for a taxpayer’s filing dates to be disputed by an IRS Appeals or Revenue Officer. When this happens those officers only want to see a copy containing an IRS date stamp as proof. For this reason it is highly advisable for you to hand deliver Collection Due Process applications.
If you must use the post office to mail then request a mailing certificate. Even with a legitimate mailing certificate the IRS is known to query the contents of the envelope in question. The stance of the IRS is a mailing certificate shows you mailed an envelope but does not prove what was in the envelope.
It is sensible to ensure you always have the necessary proof of filing. It takes a little extra time but when it comes down to your story versus the IRS you have no chance of winning.
Posted by LWM Team on Tue, Aug 17, 2010
IRS Penalties Rise if You Can’t Prove Your Claimed Deductions
The Internal Revenue Service has made it publicly clear that you must show an appropriate paper trail as proof when you claim deductions. There are taxpayers who claim home deductions and medical costs on their tax returns but don’t provide any proof. As far as the Internal Revenue Service is concerned, if there is no proof, it doesn’t exist. Aside from not providing evidence of your deductions, filing late will make the situation worse. Not only will you have rejected deductions, but you will also have a late filing penalty.
Certain deductions are valid such as the cost of medical treatment for the taxpayer and dependents. You may only deduct if the medical costs are more than seventy five percent of your amended gross earnings. The medical costs must not be remunerated by insurance. House mortgage or ‘eligible residence interest’ can be deducted but must not be more than $100,000. Interest is paid during the acquisition of a property.
The kind of information the Internal Revenue Service expects as part of the proof for claimed deductions is dates of payments, amounts of payments, invoices, names and addresses. If it is not included with your tax return it is likely the Internal Revenue Service will disallow those deductions. If you want to make sure you get the deductions entitled to you, you must provide proof in writing. This will also prevent unnecessary delays and appeals on your part but it will give you extra interest, fees and perhaps legal fees.
The weak economy is another reason to urge taxpayers to make sure they get as many tax reductions as possible. It is illegal to claim for false deductions. However, as long as you can show a paper trail of evidence for legitimate claims for deductions you have every chance of getting the Internal Revenue Service to cooperate with your request.
Posted by LWM Team on Wed, Aug 11, 2010
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To The IRS A Tax Evader Is A Tax Evader
It has been noticed that over the years many well known personalities don’t pay or even report their taxes. This is, of course, against Uncle Sam’s law. These personalities are brought to book and one such example of this type of circumstance is Tsen Toma. Towards the end of the nineties, this person operated his own business called Tomo Painting Construction. It was this business that caused Tsen Tomo to be indicted for tax evasion.
Tsen Toma was indicted because when he got checks from customers as payment for services rendered by Tomo Painting Construction, he cashed them. However, that cash was for private use. The checks were cashed at various check cashing establishments. The checks he cashed came to over a million dollars but Tsen Toma did not keep any verification in the form of receipts.
He continued to do this over a period of three years but his business records didn’t show the check payments and nor did he not notify the IRS on his tax return. In the 1998 tax year, Tsen Tomo did report a taxable amount of $29,901. However, the IRS discovered the amount should have been $452,244. This adjustment by the IRS resulted in extra tax of $168,718.
According to media releases Tsen Toma departed from the United States while under investigation by the IRS. This action led him to be placed under arrest. The arrest was carried out at Kennedy Airport on his return from the country of Taiwan. This happened on 24 November. The consequences of Toma’s actions could result in a prison sentence of five years and also a $25,000 or two times the gross gain emanating from the offense of tax evasion. This shows taxpayers that Uncle Sam does not tolerate tax evasion by any person in the United States.
Don't evade your taxes. Tax debt is no laughing matter.
Posted by LWM Team on Wed, Jul 28, 2010
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Safeguarding Your Assets from the IRS
When the IRS is attempting to collect from you it is unlawful to transfer assets as a means of keeping them from the IRS. However, if you plan ahead and use a family member you can lawfully protect your assets. If you go ahead with transfer you may not be able to retrieve your assets. No plan of protection is flawless and the IRS has the legal power to recover transferred assets. Don’t do an unlawful transfer and avoid a fraudulent action on creditors including the IRS.
You can protect your assets by:
Find a corporation that will allow your assets to be transferred to them. IRS could take corporate assets if it suspects a fake transfer.
Place assets into a partnership that is owned by family only. A joint tenancy is not sufficient so seek counsel from an expert.
Place assets in a trust for a family member or spouse. A living trust means you control the assets. The IRS won’t accept this kind of arrangement. They are distrustful of off- shore trusts.
Use an insurance trust for life insurance policies. This must be carried out prior to tax difficulties.
Retirement plans and 401(k) accounts must be completely funded. Although they can the IRS disapproves of taking plans that are non-ERISA eligible. You can lower the 401(k) account by borrowing against it in case of IRS seizure.
Complete transfer of assets to your family members. This will avoid an IRS tax bill on property you want to bequeath to your children on your death.
File separate tax returns. The IRS can take a married couple’s refunds if they file jointly. If one spouse owes then a separate tax return protects the other.
Tax Debtors Overseas
You may have to leave the country with all your assets. The IRS computer is linked to US Customs and Immigration so you may have to stay abroad for good. A large number of countries allow the IRS to collect taxes owed by US tax payers.
Posted by LWM Team on Thu, Jul 08, 2010
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Tax Professionals
Many ads claim they can assist you to pay an IRS debt for less. They profess knowledge to reduce your awful tax bill. Many call this ‘pennies on the dollar’.
They may have helped a few taxpayers pay less, but it’s not easy. It is probable that even more taxpayers cannot reduce tax bills even with their assistance.
Such companies hand in an OIC (Offer in Compromise) for the client. In certain situations it’s an alternative where the IRS accedes to an amount lower than the taxpayer’s complete bill. The IRS only does this when it’s more gainful to obtain money fast instead of spending years and money getting the taxpayer to settle in full.
The ads promise it’s an easy route. However, realistically they can’t decide on an amount and the IRS approves it. You must complete an OIC (form 656-A). In addition, you must attach a completed CI (Collect Information). CI (form 433-A) gives your financial data. The CI data must verify inability to make full payment and your proposal must be reasonable. A $150 fee must go with form 656-A (OIC). Only proof of little or no finances will allow a reduced fee. An additional 20 percent is required if you make a complete OIC amount. For an installment OIC arrangement a first payment is required.
So, the reality is the IRS doesn’t make it easy to reduce your tax bill. ‘Offer in Compromise mills’ or ‘pennies on the dollar companies’ aren’t your best solution. Tax experts and the IRS share this view. You must pay such companies whether they fulfill their promise or not. There is a belief the IRS is going to penalize such companies for misleading taxpayers.
A qualified tax professional has the expertise to follow IRS regulations and processes on your behalf. He or she will give you an honest estimation of your tax situation. This is preferable to wasting time and cash on a company that doesn’t fulfill its promise to reduce your tax bill.