IRS announces Taxpayer Relief Initiative to help those financially impacted by COVID-19

The IRS is following up on their People First Initiative from summer 2020 with some new administrative program changes to make life a little easier for taxpayers that owe back taxes and are not in a position to immediately repay those tax debts. While these are not new programs, the IRS is attempting to make it easier for taxpayers to take advantage of the existing programs, by increasing access to relief.

Under this new initiative:

  • Taxpayers now have 180 days to pay tax debts on a short-term payment plan, up from 120 days.
  • For taxpayers already paying on a previously accepted Offer in Compromise, the IRS is now offering some flexibility on the payment terms of that accepted offer.
  • Individuals with an existing payment plan on a tax debt will automatically have new tax debt balances tacked on to their existing payment plan.
  • As per March 2020 changes to the Internal Revenue Manual, certain individuals with income tax debts less than $250,000 no longer need to submit financial documentation in order to obtain a payment plan. This option is only available via call center staff, not cases that are assigned to field agents.
  • For individuals that only owe 2019 tax debt, and owe less than $250,000, the IRS may agree to not file a Notice of Federal Tax Lien (NFTL) against the taxpayer.
  • IRS is now allowing some individuals with existing Direct Debit Installment Agreements to use the IRS website
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The Simple Truth About IRS Offer in Compromise Fees

Most tax resolution companies give you a quote for services based primarily on three things:

  1. How much you owe the IRS
  2. What kind of taxes you owe
  3. How much the sales person thinks you can afford to pay THEM

Here’s a dirty little secret of the tax resolution industry that nobody else will tell you: The actual WORK required to resolve a case has very, very little to do with how much you owe or what kind of tax it is, and obviously nothing to do with how much of a fee you can pay for representation.

What makes a tax resolution case more complex has much, much more to do with other factors, such as:

  • the existence of other creditors
  • the status of your assets
  • whether or not there are existing levies or wage garnishments
  • how long you’ve been accruing a tax liability
  • your past efforts (or lack thereof) to resolve the issue
  • your ability to file missing returns quickly
  • whether or not your accounting is up to date
  • whether or not you are able to “stop the bleeding” and become current with present day filing and payment requirements (this is actually the single biggest factor)

Most companies have a minimum fee quote for doing an Offer in Compromise for you, and it’s generally higher than for doing a payment plan, because the OIC process takes 6 to 12 months from start to finish. Most reputable firms will charge … Read the rest

Common Sense Advice Regarding Offer In Compromise Scams

By now, everybody with a tax bill has heard the “pennies on the dollar” promises on radio and TV. Before handing over thousands of dollars to some Slick Rick salesman over the phone, here are some things you need to know about the Offer in Compromise program.

First and foremost: You probably don’t qualify. What’s that? How can I say that without even knowing you or your situation? Because the IRS statistics show that most people that apply don’t qualify, that’s why. In 2018, the most recent year for which data is available, the IRS outright rejected 59% of all Offer in Compromise applications that were submitted.

Secondly, the Attorneys General of several states, the Federal Trade Commission, and multiple class action lawsuits have been won over the common sales practice of promising tax relief, and not being able to deliver. More often than not, clients in those situations are sold an Offer in Compromise program for many thousands of dollars, and are then converted to an Installment Agreement (monthly payment plan to the IRS) with no refund of the price difference. This has been going on for years, and and many tax debt resolution companies have been sued for this and other egregious sales practices that are designed to do nothing but part you from your money.

There are probably tens of thousands of other OIC settlements sold by these companies every year that are never actually filed, … Read the rest

How to Choose a Tax Firm for Complex Needs

Choosing a tax professional isn’t an easy task anyway, but mix in the coronavirus tax extension deadline and current economic recession, and this process just got a whole lot more complicated. Keep reading for all you need to know about how to choose a tax firm for your complex accounting, tax planning, and taxpayer representation needs.

Do I even need an accountant or tax firm?

According to the Internal Revenue Service (IRS), every taxpayer is entitled to representation. The taxpayer may either represent themselves, or with proper written authorization, have someone else represent them. However, this representative can’t be just anyone. They must be a licensed attorney, Certified Public Accountant (CPA) or Enrolled Agent. Each individual may verify a representative’s eligibility.

Why would I want a representative?

You may want a representative (such an accountant or tax firm) to represent you for a number of reasons. These include a specific tax problem, a notice from the IRS or a tax audit. For most taxpayers, the chances of being audited are less than 1 percent. Those most likely to get audited are among those in the highest income brackets and those in the lowest. If this happens to you, your representative can help to interact with the IRS on your behalf as well as provide information and explanations. They can also enter into agreements with the IRS once you reach them. However, it is important to select your representative carefully because, … Read the rest

5 Reasons to Hire a Professional Tax Firm to Represent You In Front of the IRS Collection Division

Over the years, there have occasionally been bursts of media attention placed on the “tax debt relief”. In past years, the FTC has taken down companies such as American Tax Relief, the California Attorney General came down hard on Roni Deutch, and the Texas Attorney General won a massive civil judgment against Tax Masters. In the wake of such regulatory actions, the American consumer is likely left with the impression that all tax attorneys and tax resolution firms are just as bad as used car salesman.

While it’s true that these companies, and numerous others, have created a bad name for the tax resolution industry as a whole, the fact of the matter is that these companies are the exception, not the rule. There are dozens of companies with horrible BBB records and numerous reports on Ripoff Report and other web sites. However, for every one of those bad apples, there are dozens of reputable, hard working firms that are just as big as the con artists, and for every one of those firms there are literally hundreds of independent practitioners out there, including tax attorneys, IRS licensed Enrolled Agents, and state licensed Certified Public Accountants. Any of these licensed professionals are allowed to represent  taxpayers in front of the IRS.

The FTC recently posted a consumer alert telling people to handle their IRS disputes themselves. As an Enrolled Agent myself, I’m obviously biased in opposition to the FTC’s statement, … Read the rest

Bankruptcy vs IRS Offer in Compromise

If you have a large amount of other debt besides just tax debt, bankruptcy may be an option you end up considering. Is this the right thing to do when you have tax liabilities?

For some people, bankruptcy can be the right way to go. While bankruptcy will not erase most tax debt, the bankruptcy court determines what you pay each creditor, and may remove some of the penalties and interest, depending on the case.

The interest rate that the IRS charges, to be honest, isn’t that bad. The rate is adjusted several times per year, and it currently sits at 4%. What kills people are actually the penalties. It is not uncommon for tax debtors to max out all their penalties, which tacks on a whopping 45.5% to their principal, and THEN interest accrues on the whole thing.

To determine whether bankruptcy is the best route for you, you should consult with a bankruptcy attorney. If all you have is IRS debt, and don’t have significant other creditors and/or don’t want the bad credit associated with bankruptcy, but you cannot otherwise go on a monthly payment plan, then consider an Offer in Compromise with the IRS. It’s a good non-bankruptcy alternative for folks that might otherwise have no other choice but to file Chapter 7, but would only be filing chapter 7 because of their IRS debt.

If you do choose to file for bankruptcy, it’s important to have … Read the rest

8 Questions To Ask When Choosing An Accountant

The vast majority of small businesses could use the services of an accountant. The number of ways in which it is possible to introduce errors into your business through accounting practices is staggering. Your accounting includes issues related to payroll, monitoring profitability, inventory control, avoiding penalties and interest on taxes, and much, much more. It is wise to select a competent professional in this field to help you navigate the minefield of accounting pitfalls. Selecting such a professional can be difficult, especially since not all accountants are created equal.

Here are some questions to ask to help ensure that you are selecting the best accountant you can for your business.

1. Do they have any complaints with the Better Business Bureau?

When many individuals decide to take action and make a complaint against a firm, they often think first of the BBB. Check with your local division, or look them up online, and make sure that the company you are considering hiring has a good record with the BBB. If they have a Gold Star award from the BBB, then you’re on the right track to working with a company that is reputable and stands by their word. The BBB’s new letter grading system can also help you in selecting a good firm.

2. Have they ever been investigated by your state Attorney General’s office or state board of accountancy?

This is another place to do your own due diligence. … Read the rest

Penalty Abatement Statements – A Humorous Example

Taxpayers have the right to request relief from penalties assessed by the Internal Revenue Service. The IRS sets very specific criteria for the granting of penalty abatements. It can be very difficult to demonstrate that a taxpayer’s circumstances meet the criteria for penalty relief. Most of the time, we will request a written statement from the taxpayer explaining the circumstances that lead to the accrual of their tax liability, and then use that to create our own penalty abatement request that fits to one of the IRS criterion, cites case law, etc.

Most of the time, taxpayer’s have some reason for not paying their taxes that ties back to not having the money to do so. Lack of funds does not meet IRS reasonable cause criteria, but the circumstances behind the lack of funds sometimes can be reasonable cause.

Occasionally, the taxpayer’s explanation for failing to pay their taxes doesn’t leave us with a lot to work with. On rare occasions, we receive an explanation that is quite humorous.

This example is from a taxpayer that elected to continue NOT paying his taxes because it was financially convenient. With a struggling business, a divorce, and alimony and child support to pay, the taxpayer was experiencing financial hardship. He wrote:

I financed [business] shortfalls with credit card advances and soon I had unsupportable credit card debts and many other expenses…

As things started to turn around for the taxpayer, he continues:… Read the rest

How the IRS views your cost of living

In general, the IRS appears to take a cynical view at people’s cost of living, and can be fairly judgmental about how we spend our money. This cynicism obviously increases dramatically the moment you have an outstanding tax debt.

Before delving into specifics, I’d like to make two points regarding the IRS personnel you’d normally be discussing your personal finances with. First, IRS field personnel such as Revenue Officers and Settlement (Appeals) Officers typically have higher salaries than the IRS National Standards for the areas in which they are assigned. In other words, even as public servants, they make more money than their own standards set for a middle class lifestyle.

Second, keep in mind that these people are public servants. In fact, most senior IRS personnel are lifetime bureaucrats, meaning that they have never had to work in the private sector. Some senior Revenue Officers, Revenue Agents (Auditors), and Settlement Officers have actually never worked a day in their lives outside of the government, and don’t even have finance or accounting backgrounds.

Combining these two things, you can see that it’s very possible that the IRS person you are explaining your finances to has an interesting view on the world: They’ve always made an above average salary, and lack any personal experience running a business or dealing with the reality of private sector employment. This skewed perspective becomes readily apparent in talking to senior IRS personnel if you’re a … Read the rest

How To Deal With An IRS Notice

Most people tend to panic when they receive a notice from the IRS. Many, many people think that by stuffing that notice under the mattress, the problem will go away. Unfortunately, it doesn’t work like that. The best way to address a notice from the IRS is to deal with it immediately and head on. Here are some tips for what to do when you receive an IRS notice.

1. Don’t panic, and don’t shred it. Most IRS notices can be dealt with pretty simply. Not quickly, but simply.

2. Be sure you understand WHAT the notice is for. The IRS sends all sorts of notices — bills for overdue taxes, requests for you to file a missing tax return, to request additional information about something, notify you of pending deadline, etc. The notice will ALWAYS thoroughly explain why you are receiving it. READ IT.

3. Every notice from the IRS will explain what you need to do with it. If they want extra information from you, it will explain what information they need. If it’s a bill, well, then they just want your money.

4. If you receive a notice about a correction to your tax return, you should review the correspondence and compare it with the information on your return.

5. If you agree with the correction to your account, usually no reply is necessary unless a payment is due.

6. If you do not agree with the … Read the rest