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IRS Payment Options if you are Unable to Pay Taxes Due

September 2, 2011 By

If you find yourself in a situation where you are unable to meet your due taxes before the tax deadline, do not despair. There are available options that you can take advantage of to ensure that you do not agitate Uncle Sam. Here is what to do if you find yourself in such a situation:

File a Tax Return

Ensure that you file a tax return, even if you are unable to pay off the due taxes immediately. There are worse consequences if you do not file the return. Not filing amounts to more tax troubles and may even surmount to criminal implications.

Consider Various Options for Paying your Due Taxes

Once you have filed your tax returns, you need to plan on how you will pay the taxes due. Depending on the amount of taxes that are owed, you may consider the following options for delayed payments:

  • Request for Short Delay – If you will have the funds to pay the taxes within 120 days, then you may call the toll-free IRS number and request for a short delay. The IRS customer service representatives handling such issues are permitted to make an interest and penalty free extension of up to 120 days if you provide a good reason for the delay.
  • Installment Agreement – If the amount you owe is below $25,000.00 and you are not able to pay it all in one lump-sum, you can apply for an installment agreement under the Online Payment Agreement service available on the IRS website. You can also call the toll-free IRS number to set up this installment agreement. The installment agreement is automatic for any taxpayer who owes below $25,000.00 and you can determine the installments to pay as long as you will repay within the required period. This installment agreement also has an extra advantage – you will not be requested to provide financial statements or any further paperwork. However, you will need to pay interest on the taxes due and late payment penalties. The interest rate for tax debt to the IRS is currently at 4% and is subject to change every three months. The late fee is currently 0.25% for Installment Agreements and 0.5% for tax debts outside IRS payment agreements.
  • Consider Borrowing – You can also consider taking a loan to clear your due taxes. However, you will need to compare the amount to pay if you took up a loan against making late payments through installments. Depending on your loan terms, you can check if the loan interest will amount to more than what the IRS will charge in interest and lateness fees. If the loan interest rate is less than that of the IRS’s deal, then it would be advisable to take the loan and pay off your taxes. However, if it is cheaper to take the IRS Installment Agreement, you should not be hesitant as there is no recourse to taking the agreement.
  • Prioritize Between State and Federal Taxes – If you owe both Federal taxes and State taxes, you should also do a comparison of the charges to be levied if you are late on either of the taxes. You can then pay off the taxes that bear more charges in interest and late fees and place an installment agreement with the tax authority with lower charges.
  • Seek Professional Help – If you owe over $25,000.00 or are still unsure about how to handle your tax dilemma, you may consider seeking help from a tax professional on what to do regarding which option to select.

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How Long to Keep Your Records, In Case You Get Into IRS Trouble

June 30, 2011 By

Tax record keeping can be, well, taxing. However, it is important. The IRS created Publication 552: Recordkeeping for Individuals to help guide taxpayers in keeping their records. They request that you keep them “in an orderly fashion,” but not necessarily in any particular order.

The basic review period for the IRS is three years. However, if the IRS suspects that you have filed incorrectly, such as underreporting, they can knock on your door up to six years later! If they think you incorrectly reported a worthless stock or other bad investment, they have seven years to initiate an investigation.

You likely keep records on your income, expenses, home payments, and your investments and if you do not owe back taxes, you should keep these records for at least three years. However, if you have failed to report more than 25 percent of your income, you should keep these records for at least six years. If you file a claim for a credit or a refund after you filed your return, you should keep your documents for at least three years or for two years after you file the claim. If you file a claim for worthless securities, you should keep your paperwork for at least seven years. If you file a fraudulent return or fail to file a return (which would be extremely inadvisable), you should keep these records indefinitely.

The records you should keep regarding your income should include your Forms W-2, 1099, and K-1, bank statements, and brokerage statements. For any expenses you have, keep sales slips, invoices, receipts, and canceled checks, or other proofs of payment. If you own a home, it is important to keep closing statements, purchase and sales invoices, proof of payment, insurance records, and Form 2119 if applicable. If you made any investments, you should keep brokerage statements, mutual fund statements, and Forms 1099 and 2439.

If in doubt, keep all records for as long as you can as long as you can somehow make space for them. Also, be advised that it is best to shred or destroy these documents when you decide to get rid of them because they contain very important personal information that should not fall into the wrong hands.

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Whistleblowers’ Rewards Collected from Past Due Taxes

June 10, 2011 By

Under the tax law, a whistleblower is entitled to a claim on the amount of tax that is collected by the IRS from a tax evader who is exposed from the information disclosed by such whistleblower. The practice of rewarding tax whistleblowers is not new; it dates as far back as 1867. The practice encourages the public to reveal information about tax cheats to the IRS. This volunteer disclosure program has enabled the IRS to crack down on a lot of tax cheats and recover large sums of money from past due taxes. It has also led to an increase in tax compliance, especially for large public taxpayers (like large corporations). Furthermore, various laws protect the whistleblower, such as the Federal False Claims Act.

2006 Whistleblower Amendments

The incentive to “whistle-blow” was significantly raised through amendments to the Tax Whistleblower Act, which were made in 2006. Under the amendments, any informant that supplies tips to the IRS in regards to the exposure of tax cheats is now entitled to a 15% to 30% reward of the funds collected by the IRS from the information provided. Funds collected include taxes due, penalties, and interest. Before these amendments, the IRS had the discretion on whom and how much compensation they gave to a whistleblower. However, with this ruling, the whistleblowers’ reward is guaranteed. The new rules for whistleblower are included in the Internal Revenue Code – Section 7623 (Whistleblower Rules). Under these rules, a whistleblower is entitled to 15-20% of the collected amount if the sum collected (including penalties and interest) exceeds $2 million. If the “whistle-blowing” involves an individual taxpayer as opposed to an organization, the individual must be earning over $200,000.00 to qualify for the guaranteed 15-20% reward rule. If a whistleblower meets these threshold requirements, he or she is legally entitled to appeal on the amount given in Tax Court. When it comes to the whistleblowers who disclose information on a tax cheat whose collected amount is lower than the limits mentioned above, they may receive an award of up to 15% with a maximum of $10 million. However, such a reward is at the discretion of the IRS and cannot be appealed in Tax Court.

Whistleblower Office

The new rules under the 2006 amendments have led to an increase in the amount of information being received by the IRS from whistleblowers. The IRS has even opened a Whistleblower Office that handles obtaining and recording information from such whistleblowers. You can provide information anonymously as well, though this means that you would be forfeiting the reward. The office receives information from whistleblowers and provides answers to whistle-blowing-related issues.

Withholding on Rewards

In 2011, the IRS announced that it would be withholding tax for the whistleblowers’ reward. Since the whistleblower compensation is considered income that is to be reported like any other, the IRS ironically takes back a part of the funds rewarded when the whistleblower pays taxes on the income. There have been arguments about this new decision, as the reward is not a wage or regular income that requires withholding. However, there is no legal limitation that keeps the IRS from doing this and therefore, such arguments and objections may not bear much fruit.

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Is It Time to Hire a Tax Lawyer?

April 19, 2011 By

If you are in trouble with the IRS, there are several important factors to consider before choosing representation. Consider the level of involvement of the IRS in your issue thus far.

If the IRS is going to audit you because they believe your taxes were fraudulently filed, a tax lawyer will be able to advise you on what to do to avoid severe penalties of up to 75% of taxes you owe. If you owe taxes and paying them will create severe hardship for you, you may be able to enter into an Offer in Compromise agreement with the IRS which will allow you to pay less than your full debt. Although you can get an Offer in Compromise without representation, a tax attorney will be able to increase your offer’s chance for acceptance. In the event that your offer is not accepted, your attorney can advise you on your other options.

You may have a lien placed on your assets or your wages may be garnished because of failure to pay your taxes. With a lien or wage garnishment, the IRS attempts to gain back the value of the taxes you have yet to pay. A tax attorney can help you by getting the lien or wage garnishment removed. If the IRS has already audited your tax returns and determined they were fraudulently filed, a tax attorney can help you get the resulting penalties removed.

To find the best tax lawyer for your needs, do your research. Many attorneys offer free consultations, which is a great opportunity to assess whether you are compatible with that tax lawyer. It may also help to ask others who have had tax problems, and it is essential to make sure they have experience, the proper education, and are a member of the state bar.

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IRS Trouble for Nicolas Cage

April 14, 2011 By

No matter how much you think you would love to have Nicolas Cage’s paycheck, you don’t want to have the associated tax bill. Apparently, he didn’t either, and thought he could get away with simply not paying. Nick has gotten himself into serious IRS tax problems which could harm him financially in more ways than a hefty check to the government. He currently owes the IRS $14 million in back taxes, and contrary to popular belief, celebs don’t get the star treatment from the IRS.

This is not Cage’s only tax blunder. A few years ago, his lawyer negotiated a payment of only one-third of his $1.8 million tax bill. At the time, he and his lawyers must have cheered. However, the IRS didn’t stop there with Nicolas Cage. The IRS knows old habits die hard and kept an eye on his paychecks.

And paychecks he got. How did he get such a high tax bill? Well, he makes a lot of money per film and then does not seem to consider it income for tax purposes. For example, in 2007 he got $24 million for two movies, income on which he decided not to pay taxes.

Unfortunately, the actor is not a good candidate for an offer in compromise, a status a person with tax debt can negotiate with the IRS in order to pay back their taxes piece by piece, and often for a lower total. Offers in compromise exists for people who really cannot pay back their tax debt, but who still have to pay something in order for the government to get what is due. However, since Cage is worth around $38 million, well, he can afford it.

Nicolas Cage may make a perfect example for the IRS to show taxpayers that shirking their taxpaying duties is not a good idea. The IRS estimates that it is missing about $345 billion in unpaid taxes. This amount comes from underreported income and over-reported expenses. The IRS knows that people owe them this money and will use its powerful resources to get it.

Knowing how to navigate the Internal Revenue Code and then dealing with the IRS if you do it the wrong way is not something you would have learned in school… unless you’re a tax professional. However, if you do find yourself in a jam, know that you may have options like an offer in compromise, and can settle for an amount that seems fair with the IRS.

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How to Get a Tax Levy Release

January 21, 2011 By

A tax levy under United States Federal law is an administrative action by the Internal Revenue Service… where without going to court the IRS has the authority to seize property to satisfy a tax liability. Under Internal Revenue Code Section 6331, the IRS can “levy upon all property and rights to property” of a taxpayer who owes Federal tax.

What are your options for having your tax levy released? Of course there is the option of paying the IRS in full for some folks. However one of the most readily available options to remove a tax levy for most taxpayers is a formal monthly installment agreement with the IRS.

If your case constitutes a financial hardship and payment of your taxes will greatly impair your ability to support yourself and/or family, the IRS may lift the levy. In some cases, you may be able to wait out the 10 year statute of limitations placed on the IRS to collect back taxes. However, be aware that certain actions by you and/or the IRS can extend the statute of limitations.

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Escape Tax Debt Through Tax Evasion?

August 11, 2010 By

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.

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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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3 Easy Steps to Take Care of Unfiled Tax Returns

February 23, 2010 By

The IRS isn’t people’s most favorite government agency but every year it’s a necessary evil for us to file taxes by April 15th. Well prepared businesses will hire accountants to complete them way before the deadline so they are sent and done with well before that date. Individuals, however, will often put them off until the last minute and sometimes forget to send them or do so intentionally. This can lead to the buildup of one or more unfiled tax returns. Here are three easy steps to take care of those unfiled tax returns.

1. Get your paperwork in order.

Maybe you didn’t send them on time or maybe you haven’t even started to get them ready. Either way, make sure all your wage stubs, receipts, and other important paperwork is on hand and get them completed. If you don’t have it, you will have to make a lot of calls to old employers to get copies of your W-2 forms. The IRS has forms you may need also so check with them.

2. Send in your unfiled tax return immediately.

The IRS won’t start sniffing into your assets or calling you every day if you have sent all your old tax returns in. his will also stop penalty fees from building up. Even if you can’t pay what you owe, send it in and you can make a payment plan.

3. Prepare for the future.

The IRS doesn’t like if you wait longer than one year to file any tax return so it’s a great idea to prepare for this in the future. If you don’t want to do it yourself or don’t feel like you will have it done on time, let a tax preparer handle it.

Unfiled tax returns can get you hefty fines and even jail time depending on how much you owe and how you handle the IRS. Make sure you do it their way and everything should work out great.

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