Thursday, July 24, 2008

Facts the Average Taxpayer Does Not Know

Before I started working for a tax resolution firm, I was unaware of the nuonces centering around tax liability and tax returns. I think its safe to say that the average person does not know a great deal about the collection process with the IRS as well as the meanings of the terms. Just in case you find yourself in tax liability delinquent status and you need help, don't hesitate to seek out a licensed tax rep that can give you peace of mind and guide you through the process.
Below are a list of definitions to help you better understand the tax jargon with the IRS:

Levy- A garnishment attached to a taxpayer's wages, bank account, account receivable, social security income, etc. If issued a bank levy, the institution can "freeze" the funds the IRS is requesting at the time of levy.
Lien-Did you know that the IRS is the most preferred lien holder? There were actually 636 (k) liens filed in 2007. Whether a taxpayer does or does not own any property, IRS will issue a lien against their SSN to hinder them from purchasing, selling or transferring any property. A lien will effect their credit report. A lien is not released until the tax is paid in full or an Offer In Compromise is accepted or tax is abated. If the taxpayer is preparing an OIC and it is accepted, the lien will be released once the OIC payment terms have been satisfied. If not preparing an OIC, the lien will be released when the tax debt is either paid in full or the statute to collect the tax has expired. The Internal Revenue Code of 1986 provides for a statutory lien of the Federal Government to be filed for a tax debt after a proper assessment, notice and demand, and a neglect or refusal to pay. Liens can be discharged or subordinated under special circumstances i.e OIC, Tax abated, tax paid in full,or CSED expires. A Federal Tax Lien is formally recording in the appropriate public records office (county recorder, MENSE, Secretary of State (UCC) or US District Court) in order to establish priority over creditors, judgement lien creditors and other lenders.
L1058- When a taxpayer receives this notice, you are considered in the Collection Status (ACS) or status 22.Before this, the taxpayer is in Customer Service and liens have not been filed. Therefore you can get into an agreement with the IRS. However this will depend on whether or not you owe under $25,000.
Collections Division or ACS-The organizational arm of the IRS which has the mission of collecting delinquent taxes and securing delinquent tax returns for individuals, businesses, corporations, trusts, or any other entity that owes the IRS money. The Service Center Collection Function, the Automated Collection Site, or the Field Collection Function is all part of the Collection Division. The revenue officer is required to effectively collect against any Balance Due accounts.
RSED-Refund Statute Expiration Date. The IRS actually has three years from the due date of return to get your refund that may be due,
ASED- Assessment Statute Expiration Date. This is where the IRS has three years from the date of filing to access the balance owed. Say for instance and audit needs to be performed, the IRS will have three years to assess the liability from the date that return was actually filed.
CSED- The IRS has ten years from the date of assessment to collect monies (from the assessed balance date).

If you have tax liability or tax return questions, contact someone today who can work towards a resolution and stop the alluring IRS today.

Tuesday, July 22, 2008

When Are You Considered in Collection Status With The IRS?

Many of our clients are all consumed with having liens/levies filed. Once this happens, consider yourself in collections status. However to get here, one would have to be a perpetual late filer or have debt liability, causing them to react (to important notices)later than than they should have. It's always important to take care of the issue at hand versus waiting to the last minute which in turn will cause undo stress and increased penalties and interest that are extremely difficult to get removed. Keep in mind that
There are several notices (about 4 to be exact) the Internal Revenue Service will send you before you get assigned to the collection department. Unfortunately, some taxpayers are naturally procrastinators which inevitably will continue to get them in deeper and deeper debt with the IRS if not addressed as soon as the notice is received. I don't think that taxpayers take the IRS serious when these notices are sent. But after the following notices are subsequently sent, the IRS will not be so lenient with a taxpayer after they have tried to worn them time after time.

Here are the notices the IRS will send to a delinquent taxpayer before sending them to the collections department:


After you have been sent the CP-504, the IRS considers you in "collections". Immediate action to levy your bank account or wage will take place in about 30 days from the time you are sent the CP-504. This notice is called the Intent To Levy Notice. About 10 days from when the 504 is sent , the taxpayer will be issued an L1058. This is the final notice that confirms the levy implementation on ones bank or wage. If a taxpayer tries to call and rectify their tax debt, they will be unsuccessful due to the requirement of a Power Of Attorney. POA's are the only individuals with enough authority to have a Stay On Collection granted.
It is imperative that you take care of your tax debt and file your returns on time. Once entering in the collection process, there is no turning back. The IRS will continue this daunting process with hopes the client will pay their debt owed in full.
There are reputable companies out there than can help with the filing of your taxes and your tax liability where you don't have to pay your debt in full. If you find yourself currently in the collection department, don't wait. Its better to be proactive instead of trying to catch up.

Monday, July 21, 2008

Stimulus Payouts for Retirees !

In Washington , the Internal Revenue Service today reminded qualifying retirees and veterans that it is not too late to file for an economic stimulus payment and announced it will send a second set of information packets to 5.2 million people who may be eligible but who have not yet filed for their stimulus payment.
The packages will contain everything needed by a person who normally does not have a filing requirement but who must file this year in order to receive an economic stimulus payment. There will be instructions, an example Form 1040A return showing the few lines that need to be completed, and a blank Form 1040A. The packages will be mailed over a three-week period starting July 21.
“All it takes is a few simple steps, and the payment can be on its way. It’s not too late to file, but the sooner people file, the faster they’ll receive their money,” said Doug Shulman, IRS Commissioner.
The mailing is part of an IRS summer campaign to reach out to those people who have no requirement to file a tax return but who may be eligible for a stimulus payment of up to $300 ($600 for married filing jointly). For those eligible for a payment for themselves, there also is a $300 per child payment for eligible children younger than 17.
The IRS has accounted for about 75 percent of the approximately 20 million Social Security and Veterans Affairs beneficiaries identified as being potential stimulus recipients. All but 5.2 million of those have either filed a return, filed a joint return or were not eligible for a stimulus payment (for example, they were claimed as a dependent on another’s return).

People in this category must have at least $3,000 in qualifying income to be eligible for the minimum amount of $300 ($600 married filing jointly). Qualifying income is the total of Social Security, Veterans Affairs and/or Railroad Retirement benefits plus earned income, including nontaxable combat pay
People receiving only Supplemental Security Income are not eligible. Eligible people must have a Social Security Number (unless their spouse is a member of the military) and be neither a dependent nor eligible to be a dependent on another’s tax return.
Receiving the stimulus payment should have no impact on other federal benefits currently being received. The stimulus payment is not taxable. Absent any other filing requirements, filing a tax return to receive a stimulus payment does not mean that retirees and others will have to start filing tax returns again.

Sunday, July 20, 2008

IRS Enforced Penalties :

The Internal Revenue Code imposes many different kinds of penalties, ranging from civil fines to imprisonment for criminal tax evasion.
If you do not file your return and pay your tax by the due date, you may have to pay a penalty. You may also have to pay a penalty if you substantially understate your tax, understate a reportable transaction, file an erroneous claim for refund or credit, or file a frivolous tax submission. If you provide fraudulent information on your return, you may have to pay a civil fraud penalty.
Penalties are generally payable upon notice and demand. Penalties are generally assessed, collected and paid in the same manner as taxes. The notice will contain the name of the penalty, the applicable code section, and how the penalty was computed (or information on how to obtain the computation if not included).
This fact sheet is the 22nd in the Tax Gap series. It provides additional guidance to taxpayers regarding civil penalties and the consequences for understating income and overstating expenses.
Estimated Tax-Related Penalties
Employees have taxes withheld from their paychecks by their employer. When you have income that is not subject to withholding you may have to make estimated tax payments during the year.
This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes, and awards. You also may have to pay estimated tax if the amount being withheld from your salary, pension, or other income is not enough to pay your tax liability.
Estimated tax payments are used to pay income tax and self-employment tax, as well as other taxes and amounts reported on your tax return. If you do not pay enough through withholding or estimated tax payments, you may have to pay a penalty. If you do not pay enough by the due date of each payment period you may be charged a penalty even if you are due a refund when you file your tax return.
Penalties for filing or paying taxes late
The most common penalties are for filing late or paying taxes late.
Filing late: If you do not file your return by the due date (including extensions), you may have to pay a failure-to-file penalty. The penalty is usually 5 percent for each month or part of a month that a return is late, but not more than 25 percent. The penalty is based on the tax not paid by the due date (without regard to extensions).
If you file your return more than 60 days after the due date, the minimum penalty is $100 or, if less, 100 percent of the tax on your return.
Paying tax late: You will have to pay a failure-to-pay penalty of ½ of 1 percent (0.5 percent) of your unpaid taxes for each month, or part of a month, after the due date that the tax is not paid. This penalty does not apply during the automatic six-month extension of time to file period if you paid at least 90 percent of your actual tax liability on or before the original due date of your return and pay the balance when you file the return.
The failure-to-pay penalty rate increases to a full 1 percent per month for any tax that remains unpaid the day after a demand for immediate payment is issued, or 10 days after notice of intent to levy certain assets is issued.
For taxpayers who filed on time, the failure-to-pay penalty rate is reduced to ¼ of 1 percent (0.25 percent) per month during any month in which the taxpayer has a valid installment agreement in force.
Combined penalties: For any month both the penalty for filing late and the penalty for paying late apply, the penalty for filing late is reduced by the penalty for paying late for that month, unless the minimum penalty for filing late is charged.

Sunday, July 6, 2008

Charitable Contributions

Charity, as I hope everyone remembers, begins with a tax deduction. If you didn't have the cash to contribute in 2007, I hope you charged it. And, likewise, if you don't have the cash when it comes time to contribute in 2008, go ahead and charge it. The deduction is allowed in the year of the charge, not when you actually pay the bill.
Get a receipt from the charity to which you made a donation, and, if you're still worried about documentation, get the credit card company to send you their record of the transaction.
Now, let's say you emptied your closets and gave everything to Goodwill or a similar charity. The value of your donated items -- clothes, furniture, whatever -- is deductible. Get a written receipt. With noncash charitable contributions, the rule is simple: No receipt means no deduction if you get audited. Clothes and household goods must be in good or better condition to get the deduction.
If you've already dumped your old clothes in a Salvation Army box and walked away without a receipt, take the deduction anyway. You've legitimately made the contribution. You just may not be able to prove it in an audit. Starting with 2007 returns, the law requires a receipt or some sort of written confirmation for all charitable donations. Feel lucky? Play the audit lottery. You're still an honest person.

If you can, reconstruct as much as you can the list of items you donated and then figure out their market value. The easiest way is to go to a thrift store and check prices there.
And then, of course, when you make the donation, get that receipt.

Small Business Tax Credit: Health Insurance

As we all know, this country is lead by the middleclass working individual and the small business class owner. My brother and sister-n-law own their own ceramics business, in Seagrove NC. They have been in business for over six years now, and are currently feeling the effects of the depreciation in the economy. They also know the importance of healthe insurance but know all to well the expense this entails for he and his spouse. However, there are tax breaks (in regards to health insurance) the IRS will issue that you may not know. I informed my brother that he could actually save money by reporting his insurance premiums without having to show it as a itemized deduction:

Health insurance premiums Any health insurance premiums you pay, including some long-term-care premiums based on your age, are potentially deductible. You have to add these, however, to your medical expense pot. Medical expenses have to exceed 7.5% of your adjusted gross income (AGI) before they give you any tax benefit.
But if you're self-employed and not covered by any other employer-paid plan, you can deduct 100% your health insurance premiums "above the line." Above the line means the expense is included in adjusted gross income and doesn't get lumped in with itemized deductions. That means that you not only don't have to exceed the 7.5% floor, you don't even have to itemize!

Hope and Lifetime Education Credit

Student higher education expenses For 2007, if your adjusted gross income isn't more than $65,000 ($130,000 on a joint return), you can get an above-the-line deduction of as much as $4,000 for any higher-education expenses you paid. Now, the law expires after 2007. So, again, this is one that bears watching, although I see the break getting renewed.
See if you qualify for the Hope and Lifetime Learning credits. The Hope credit is worth as much as $1,650 per student subject to income limits for 2007 and $1,800 for 2008. The Lifetime Learning credit is worth as much as $2,000 per return. Compare the credit with the deduction, and go with the one which gives you the biggest benefit. And, if you don't qualify for either credit, you may be able to deduct up to $4,000 in education expenses in 2007 and, one hopes, in 2008. Again, Congress has to renew the break.

Expiration on Hybrid Tax Credit

This past week I wrote on the tax credits receieved through the purchase of a Hybrid car. I wanted to follow up with some new information found in regards to the tax credits!

Clean fuel creditCredits are good because they are a dollar-for-dollar reduction in tax. And if you bought a new hybrid gas-electric auto or truck in 2007, you can get a conservation tax credit of between $250 and $1,000 and an additional fuel economy credit of between $400 and $2,400, depending on the make and the fuel economy. A hybrid car combines an electric motor with a gas fueled internal combustion engine.
But act quickly. The credit starts to phase out when the auto manufacturer sells its 60,000th hybrid vehicle. That's the total per manufacturer, not 60,000 per model. Once the cap is reached, the phaseout starts at the beginning of the second subsequent calendar quarter.

For the next two quarters, you can claim only half the credit. In the six months after that, 25% of the full credit. So, if Honda's cap was reached, say, in August 2006, buyers of Honda's hybrids would get 100% of the credit through Dec. 31, 50% for those purchased in January 2007 through June 2007, and 25% for any bought in the remainder of the year. After that, zero.
You get the deduction in the year you start using the car, and you must be the original owner. Take it on your Form 1040 by writing in "clean fuel."

Saturday, July 5, 2008

2007- Fiscal Year Statistics for Business's

In the business arena, the IRS continued efforts to review more returns of flow-through entities – partnerships and S Corporations. Our business numbers reflect that we have placed more emphasis in the growing area of these flow-through returns. While large corporate audits are down slightly, we have increased our focus on mid-market corporations – those with assets between $10 million and $50 million dollars. The IRS enforcement budget in 2007 was similar to the budget in 2006, and in times of flat budgets, the agency cannot increase activity across the board but must address the areas where there is growth and potential risk.

Audits of S Corporations increased to 17,681 during 2007, up 26 percent from the prior year’s total of 13,984.
Audits of partnerships increased to 12,195 during 2007, up almost 25 percent from the prior year’s total of 9,777.
Audits of mid-market corporations increased to 4,473, up 6 percent from last year’s total of 4,218.
Audits of businesses in general rose to 59,516, an increase of almost 14 percent from the prior year’s total of 52,223.
Although the audits of large corporations dipped slightly in 2007 to 9,644 audits, the number of audits is up 14 percent from the fiscal year 2002 level.
Taxpayer Services

More taxpayers chose to file electronically in 2007 than during the prior year, with 57 percent of individual tax filers choosing to e-file in 2007, up from 54 percent in 2006.
More people visited the IRS internet site, The IRS site was accessed more than 217 million times in 2007, up more than 10.5 percent from the same period in 2006.
The IRS helped more taxpayers find out about their refunds through the agency’s internet-based system ‘Where’s my Refund?’ The system was accessed 32.1 million times during 2007, up 30 percent from last year’s usage of 24.7 million.
As in the prior year, the IRS accuracy was 91 percent on tax law questions answered through its toll-free telephone service.
The agency held a 94 percent customer satisfaction rating for its toll-free telephone service.
More detailed information is available in the FY 2007 IRS Enforcement and Services Tables and the FY 2007 Enforcement Revenue and Individual Audits Chart

Thursday, July 3, 2008

IRS 2007 Fiscal Year Report for Individuals

I wanted to list the Fiscal Year 2007 Enforcement and Services Results in terms of the IRS evaluations:

The IRS continues to make strong progress in a number of key enforcement areas. The IRS is showing consistent improvements in areas critical to maintaining a fair, efficient tax system while bringing billions of additional dollars into the Treasury. At the same time, the agency continues to improve service to taxpayers.

The IRS enforcement efforts increased again in fiscal year 2007. For instance, during 2007 the IRS audited 84 percent more returns of individuals with incomes of $1 million or more than during 2006. Overall, enforcement revenue reached $59.2 billion, up from $48.7 billion in 2006 and nearly $34.1 billion in 2002.

Highlights of the enforcement and services numbers for fiscal year 2007, which ended on September 30, include:


Audit rates increased in 2007, both for overall individual rates and for higher-income taxpayers.

Audits of individuals with incomes of $1 million or more increased from 17,015 during fiscal year 2006 to 31,382 during fiscal year 2007, an increase of 84 percent. One out of 11 individuals with incomes of $1 million or more faced an audit in 2007.
Overall, the total individual returns audited increased by 7 percent to 1,384,563 in 2007 from 1,293,681 in 2006. That’s the highest number since 1998.
Audits of individuals with incomes over $200,000 reached 113,105 returns, up 29.2 percent from the prior year total of 87,885.
The IRS increased audits of individual returns with income of $100,000 or more, auditing 293,188 of these returns in 2007, up 13.7 percent from last year’s total of 257,851.
The IRS filed 3.8 million levies and almost 700,000 liens during 2007, an increase from the previous year and a substantial increase from five years earlier.

Tuesday, July 1, 2008

John McCain and his propsed tax cuts

The road to this years election has been one of the most talked about, most controversial running ever. For the first time in history we could have our first African American president. However, if John McCain wins, there seems to be premptive change on the rise when it comes to taxes. According to Senator John McCain, there are significant changes that he wants to impliment/integrate in our economy! Below are some strategies he is proposing for the upcoming election.

Pro-Growth Tax Agenda- John McCain believes taxes should be low, simple, and fair and has a track record of commitment to these principles.
Cut Taxes On The Middle Class-
Cut Taxes For Middle Class Families: Hard-working American families need lower taxes. John McCain will permanently repeal the Alternative Minimum Tax (AMT) -- a tax that will be paid nearly exclusively by 25 million middle class families. John McCain will repeal this onerous tax, saving middle class families nearly $60 billion in a single year. Under McCain's plan, a middle class family with children set to pay the AMT will save an average of over $2,700 -- a real tax cut for working families.
Pro-Growth Tax Policy
Keep Tax Rates Low: Entrepreneurs are at the heart of American innovation, growth and prosperity. Entrepreneurs create the ultimate job security -- a new, better opportunity if your current job goes away. Entrepreneurs should not be taxed into submission. John McCain will fight the Democrats' crippling plans for a tax increase in 2011. Left to their devices, Democrats will impose a massive $100 billion tax hike, almost $700 per taxpayer every year.
Make It Harder To Raise Taxes: John McCain believes it should require a 3/5 majority vote in Congress to raise taxes.
Cut The Corporate Tax Rate From 35 To 25 Percent. A lower corporate tax rate is essential to U.S. competitiveness. America was once a low-tax business environment, but as our trade partners lowered their rates, America failed to keep pace, leaving us with the second-highest rate among the world’s advanced economies.
Reward Saving, Investment and Risk-Taking: Low taxes on dividends and capital gains promote saving, channel investment dollars to innovative, high-value uses and not wasteful financial planning. John McCain will keep the current rates on dividends and capital gains and fight anti-growth efforts by Democrats.
Allow First-Year Deduction, Or “Expensing”, Of Equipment And Technology Investments. Expensing of equipment and technology will provide an immediate boost to capital expenditures and reward investments in cutting-edge technologies.
Pro-Innovation Tax Cuts
Ban Internet Taxes: John McCain believes we must make a farsighted, robust, and fervent commitment to innovation and new technologies to sustain our global competitiveness, meet our national security challenges, achieve less costly and more effective health care, reduce dangerous dependence on foreign sources of oil, and raise the quality of education in the United States. John McCain has been a leader in keeping the Internet free of taxes. As President, he will seek a permanent ban on taxes that threaten this engine of economic growth and prosperity.
Ban New Cell Phone Taxes: John McCain understands that the same people that would tax e-mail will tax every text message -- and even 911 calls. John McCain will prohibit new cellular telephone taxes.
Establish Permanent Tax Credit Equal To 10 Percent Of Wages Spent On R&D. This reform will simplify the tax code, reward activity in the United States, and make us more competitive with other countries. A permanent credit will provide an incentive to innovate and remove uncertainty. At a time when our companies need to be more competitive, we need to provide a permanent incentive to innovate, and remove the uncertainty now hanging over businesses as they make R&D investment decisions.
Retirement Tax Cut-
Lower Medicare Premiums: Seniors face a growing threat from higher Medicare premiums that tax away their Social Security and retirement savings. John McCain has proposed comprehensive, pro-market health care and Medicare reforms to reduce health care costs and control increases in premiums -- while delivering high-quality health care.