Category: Taxpayer Representation

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

Within the tax resolution industry, there are a variety of fee models that you should be aware of. Different fee models have different potentials for abuse by the firm offering the services, and it is important to do your due diligence and fully understand what you are paying for, how much, and when, before ever paying a single dime to a tax resolution firm.

One of the most common fee models is a retainer model, which is a carryover from the world of legal and CPA firms from which many tax practitioners come. Under this model, you pay an up front amount, which the firm holds on to and then bills against on an hourly basis. Close to the time when the retainer is all used up, you will  get a bill showing what was done, how long it took, and the hourly rate it was billed at. This bill will usually also include a request for additional retainer. The key thing to remember here is that if you don’t keep paying, they don’t keep working.

If you’ve been researching particular companies online, you may already have come across BBB, forum, Attorney General, and other complaints against some firms that aggressively bill down retainers, and are constantly asking their clients for more money, without making much significant progress on a client’s actual tax case. It is important that you thoroughly vet a company before giving them money, in order to … Read the rest

A friend of a friend was recently referred to me for some help with a tax problem. This individual isn’t rich, works a regular job for a paycheck, and simply got behind on personal income taxes. The situation is compounded by the possibility of some errors on the originally filed tax returns, which I have yet to examine to make that determination one way or the other.

This is NOT an uncommon situation these days. Regular, working class folks that owe a few thousand this year that they can’t pay, and the same thing the next year, etc. Do this for 3 or 4 years, and suddenly you owe the IRS $10k, $15k, $20k…with penalties and interest growing it daily. So, what to do?

First and foremost, remember this: Don’t get ripped off by a tax resolution firm promising you the world when you can easily fix the problem yourself.

Yes, the IRS carries a big stick. But they’re not going to hit you upside the head with it if you take care of the situation.

First of all, if you believe you’ve made mistakes on your tax returns that caused the liability, then you should have the tax returns amended. You have three years from the date a return was filed in order to correct it, so if you’re in that time window and you think you would owe less if they were fixed, start there.

Second, if … Read the rest

Yesterday, the IRS rolled out a shiny, brand new version of Form 656-B, the Offer in Compromise application booklet. After years of complaints from every corner of the tax world, including tax professionals, taxpayer advocacy groups, the government’s own Taxpayer Advocate panel, and even members of Congress, the IRS has finally fixed the worst problem that has ever existed with the Offer in Compromise program.

For the past 15 years, the IRS expected you to include in your offer amount the equivalent of your next 4 or 5 years worth of disposable income. In other words, the IRS would look at your current income, deduct your allowable household expenses, and then multiply that number by either 48 or 60…and then expect you to come up with that amount of money (plus the value of your assets) within the next few months, which obviously isn’t practical and defeats the very purpose of the OIC program.

Here’s an example: If you make $4,000 per month, and the IRS “allows” you credit for $3,500 in monthly expenses, then you have $500 per month left over. If you agree to pay your Offer amount in 5 months or less, they multiply that $500 times 48 months, which is $24,000. If you also happen to have $20,000 of equity between a car and your house, your minimum offer amount suddenly becomes $44,000, or almost an entire year’s salary…and they expect you to come up … Read the rest

One of the most common points of confusion among business owners in regard to their tax debt has to do with the Trust Fund Recovery Penalty. I’d like to explain what “trust fund” taxes are, where they come from, how the IRS holds somebody personally responsible for them, and, most importantly, what you can do about them.

What Are “Trust Fund” Taxes?

“Trust fund” taxes are any tax that is collected by you, on behalf of somebody else. There are many different trust fund taxes, but the two most common are sales taxes and income withholding taxes.

Most states are very aggressive about collecting sales taxes (North Carolina will physically arrest you for not paying them). Technically speaking, sales taxes are owed by the person making the purchase. However, because they are collected at the point of sale, they are a trust fund tax. This is because the person paying them (e.g., your customer) is “trusting” you to hold that tax money and pay it on their behalf. When you receive sales tax money from your customers, you are supposed to hold it in a separate “trust” account, and then hand it over to the tax man when it is due (usually monthly, in most states/counties).

Income withholding taxes are also “entrusted” to you by your employees. Specifically, these are income taxes you withhold from paychecks, and the employee’s half of Social Security and Medicare that you take out of … Read the rest

TaxMasters, a tax resolution firm based out of Houston, TX, had been under investigation by the Texas Attorney General since 2010 for unethical sales practices. After finally going to trial earlier this year, a jury has passed down a verdict of $195 million against the firm. This amount includes $113 million in restitution to the firm’s customers, $81 million in civil penalties, and $1 million in attorney fees. The company was found guilty of 110,000 violations of Texas consumer protection laws.

Founder and CEO Patrick Cox himself must pay well over $40 million of the award from his own personal fortune.

The firm was primarily accused of failing to disclose it’s no-refund policy, and for failing to immediately start work on a client’s case, but rather waiting until fees were fully paid before even doing anything to protect clients.

The firm recently filed for Chapter 11 bankruptcy protection during the course of the trial.

If you were a TaxMasters client, however, don’t expect to get any money. In it’s bankruptcy filing, the company only listed $50,000 in assets, and it is unlikely that Patrick Cox possesses the $40 million assessed against himself.

So, what can you do if you are a victim of TaxMasters, or any other company? Here are some quick tips:

1. Contact your Revenue Officer immediately, to find out the status of your case in the collections process.
2. If you have tax returns that are overdue, get them

Note: This is a guest post written by an attorney that formerly worked in the tax resolution industry, and later went on to work with the US Attorney’s Office. He has asked to remain anonymous, but wanted to share some personal insights about the IRS Collections process.
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For those that don’t work much with the Collections Division of the Internal Revenue Service, there is a stigma attached to both the methods and people involved. On one side, the IRS is seen as bullying taxpayers, especially the “little old ladies” and the “working men.” On the other side, the taxpayers are seen as being inadequate business people and as “stealing” from the government. Is the IRS an evil organization created by bureaucrats to systematically take the wealth of it’s citizens? Are the individuals caught up in the system evildoers needing to brought to justice? Both statements are a little extreme.

In all reality, the Collections Division of the IRS does not care where the money goes. Sometimes, it does not even care if it gets it. It, like many administrative agencies, seems more caught up it’s own procedures. Anyone having worked with the IRS might wonder if they are on a fool’s errand, considering how many of the installment agreements entered into by the IRS default.

The Collections Division is concerned primarily about getting taxes that should have been paid, but were not (a.k.a. “the tax gap”). These can be … Read the rest

An IRS Installment Agreement, or payment plan, is the primary means by which taxpayers with tax debts settle up with the government. A special provision in the law allows the IRS to accept payment plans without reviewing your financial information, which they are otherwise normally required to do. These simpler payment plans are called a Streamline Installment Agreement.

Normally, applying for an IRS payment plan is literally like applying for a home mortgage loan, and requires extensive prying into your personal finances. Historically, the IRS will simplify this procedure if you owe less than $25,000 and can make large enough payments to pay off the tax debt within 5 years (60 months).

The IRS has issued new regulations regarding Streamline Installment Agreements, due to the continued economic difficulties and the fact that their collections case burden is skyrocketing and they don’t have the personnel to manage so many tax debts.

The IRS will accept now a Streamline Installment Agreement for taxpayers that owe up to $50,000. In addition, they will give you up to 6 years to pay it all off. This effectively makes the vast majority of tax debtors eligible for the program, allowing the IRS to expend resources chasing after people that owe much larger sums of money, and lessening the headache and aggravation they cause to middle class families that have enough to worry about without the threat of the IRS seizing funds in bank accounts or … Read the rest

Every year, the IRS rolls out new initiatives to make sure everybody is complying with the tax laws. While certain things, such as frivolous tax arguments, are always enforced, the IRS shuffles personnel around to enforce compliance with certain parts of the tax code based on the trends they identify. Five of those trends are discussed here.

1. Foreign accounts and assets. If you have money or assets overseas, the IRS wants to know about it. If you have more than $10,000 in a foreign bank account, you’re required to file an annual disclosure statement with the Treasury Department. In addition, the IRS is now requiring foreign banks to enter into information sharing agreements, or else have 30% of payments transferred to them from the U.S. withheld to pay potential tax bills. The failure to disclose your overseas assets can result in significant penalties, and potentially criminal prosecution.

2. Payroll taxes. The single biggest emphasis of enforcement within the employment tax arena has to do with taxpayers that pyramid their employment tax liabilities, meaning that they owe money, and continue to accrue new liabilities each quarter. The IRS is also heavily targeting the owners of S-corporations that don’t pay corporate officers a fair wage (and thus payroll taxes), but rather take nothing but distributions, which are not subject to payroll taxes.

3. Gift tax audits. Many people don’t realize that giving cash gifts to their friends and family can have … Read the rest

When a taxpayer owes money to the IRS, they enter the IRS Collections system. The IRS has a very detailed process that they are required by law to follow when it comes to collecting tax debts. Knowing a little bit about how this system works and how IRS collections personnel are required to act can be very beneficial to you.

There are two distinct collections units within the IRS. The first is the Automated Collection System (ACS), which consists of computerized lien filings, automated send out of bills and notices on set intervals, and the call center agents that perform basic collections functions. It is important to understand that the people you’re talking to on the phone at ACS have limited authority, and may not be able to assist you with every tax matter without elevating to a supervisor or other personnel.

The other distinct collection unit within the IRS is the Collection Field Function. Field agents, called Revenue Officers, are located in cities and towns across the country. Rural Revenue Officers may work from home and have a field territory covering hundreds of miles, while thousands of agents in big cities have extremely small territories and may hardly ever leave their Federal Building.

Revenue Officers are required to do many things in order to “resolve” a tax liability placed under their control. They are required, by law and regulation, to collection certain information, verify things through whatever means available, … Read the rest