The IRS made an announcement yesterday that it is more willing to work with taxpayers this year who have become unemployed or financially strapped. In other words, the IRS is relaxing rules on income tax settlement methods such as an Offer In Compromise, which is one way a taxpayer can pay less than they owe. Moreover, the IRS will be offering taxpayers the option of meeting in person with IRS employees on certain Saturday’s at IRS offices starting March 27th. As we have stated before as a firm, the IRS wants taxpayers to be compliant and is more than willing to work with taxpayers who are communicative as well as in need.
Why More Offers In Compromise Should Be Accepted
Offers In Compromise are rarely accepted (10-15%) but now with the IRS offering more flexibility we should see an increase in acceptances. Before this announcement yesterday, the IRS would consider an Offer In Compromise using a taxpayer’s previous income history. However, now the IRS will be placing higher emphasis on a taxpayer’s current and future income as well as their job status. Many taxpayers who are struggling financially or unemployed will get offers accepted if they agree to adjust their agreement when their financial situation improves. It is important to understand that the IRS will not accept an Offer In Compromise or an offer to pay less than what you owe unless the IRS feels that you will not be able to pay in full. Other acceptable reasons include proof that amount assessed is incorrect or that if the IRS collected the full amount from you it would cause economic hardship.
Schulman did state in an interview though that if you ignore the IRS, or you fail to file a tax return that you will not be eligible for an Offer In Compromise or any other tax settlements. In general, always file a tax return as the consequences are stiff.
This recent announcement is part of a greater IRS effort to help taxpayers during these difficult economic times. The IRS has stated publicly, that for taxpayers facing financial hardship, the IRS is ready to help. Doug Schulman, the IRS commissioner stated, “Times are tough for many people, and the IRS wants to do everything it can to help people who have lost their job or face financial strain.” This includes taxpayers who missed Installment Agreement payments, taxpayers facing tax liens that are preventing them from selling their home or refinancing, and taxpayers who need levies released (e.g. IRS wage garnishment).
If you find yourself in the unenviable position of owing the Internal Revenue Service (IRS) taxes and are looking for help in paying or reducing the taxes owed, use caution before enlisting the help of a company that offers tax settlement services. The IRS is sometimes willing to negotiate the amount of taxes owed through their Offer In Compromise (OIC) agreement. It is important for taxpayers to know that this is not a common practice and you must qualify under very specific circumstances to even be considered for this type of agreement. As a general rule the IRS does not extend the OIC to any individual who they believe can pay the liability in full or through a payment plan. Understanding these facts can help you avoid being scammed by a number of companies that offer services which are not legitimate and may result in you facing more financial problems in the future. The following tips can help you weed out the companies that are just interested in relieving you of your hard earned cash.
Do you qualify for OIC- Debt settlement is a popular method of debt elimination, however dealing with the IRS and owed taxes is an entirely different ballgame. In order to be eligible for an OIC, you must meet certain criteria which you can learn more about by visiting the IRS website. If you feel you are eligible per their guidelines, then you can consider working with a company that offers tax settlement services. By educating yourself first before moving forward you can reduce the chances of being scammed by a company that is not forthcoming with all the facts regarding the process.
Company offers guaranteed results without questioning your situation- Be on the lookout for companies that promise guaranteed results, fast without even bothering to ask you some basic questions. Does the tax attorney or “expert” confirm why you owe the taxes? Do they question your ability to repay the taxes in a traditional method? If they are not asking you the right questions, but are instead pushing for an OIC without considering other options, they are more than likely not interested in resolving your problem with the IRS. In order to truly help you with your tax problems they must understand the background information. Secondly, no one is able to predict how the IRS will respond, therefore anyone promising fast results without even meeting the taxpayer to learn more, is selling results they can’t possibly predict.
Confirm physical locations- Telephones, fax machines and email have made it possible for most business transactions to require little or no physical meetings. This makes it possible for “dummy” companies to scam people without ever meeting them face to face. A legitimate company will have a physical address whereas con artists will set up locations that do not exist or they will not disclose their address. If you can’t meet with the people who are helping you resolve your tax problems, they are probably not conducting legitimate business services.
Amount of cash deposit required- Tax attorneys, like other attorneys generally require some sort of cash deposit before they begin working on your case. This in itself is not a sign of a scam, however honest attorneys will estimate how much your case will cost and determine a fair deposit amount based on that figure. If you have already discussed your case with a tax attorney and shared how much cash you have available to work with, and the deposit matches that amount….proceed with caution. In general, it is best to avoid companies with retainer fees (if possible) in order to limit your risk.
Unresponsive or changing representatives- You are dealing with a serious financial problem and need to have the ability to communicate with the person handling your case on a regular basis. If you find you are often waiting for replies or are dealing with company representatives that are constantly changing, the chances your case is being handled with the care and focus necessary to be successful are slim.
When it comes down to it, you have to use a bit of common sense and follow your instincts when considering a tax settlement company or attorney. Research the company prior to exchanging information and if you see red flags that just don’t seem right, continue searching until you find a company or person who you feel is competent in representing your case.
April 15th is the normal deadline to get your income taxes filed with the IRS. You can always request an automatic 6-month extension, which gives you until October 15th to file your taxes using form 4868. Be aware, that if you elect to to extend your filing deadline, it is not an extension to pay. In fact, if you push off your filing the IRS will charge you interest for an underpayment. If your underpayment is greater than 10%, you will incur a Failure to Pay Penalty which is .5% on the amount owed. The worst thing you can do is file your taxes late without filing for an extension first.
But why would you want to file your tax return late? Well there are many good reasons for doing so with some being more obvious than others.
You Simply Cannot File By April 15th Due to Unforeseen Events – This may be a death in the family, a natural disaster, sickness in the family, incarceration, your records were stolen, and so on. Remember, the IRS does not need a reason for you to request a filing extension–the extension is automatic.
You Plan On Purchasing A House & Realizing the Tax Credit for 2009 – When Congress extended the home-buyer tax credit last year it had a few notable provisions. As long as you purchase a home on or before April 30th, 2010 you can qualify for the tax credit. Furthermore, if you can secure a contract before May 1st, 2010 with a closing before July 1st, you can also qualify for the tax credit as well. Therefore, if you plan on purchasing a home and you are not sure if the process will be completed by April 15th, it makes sense to file an extension. Alternatively, you can always claim the tax credit on your taxes for 2010.
You Converted a Traditional IRA to a Roth and It Lost Value – If you converted a traditional IRA to a Roth IRA in 2009 you would be expected to pay taxes on that conversion since a Traditional IRA is funded with pre-tax dollars. However, if you Roth lost money after the conversion it makes no sense to pay taxes on money that is not there anymore. Reversing a Roth IRA back to a traditional IRA is called a “Recharacterization.” The deadline for this reversal is October 15th of the year after the conversion to prevent tax liability. Therefore, a tax extension will allow you to lower your tax liabilities if you plan on reversing a Traditional to Roth conversion. If you are doing this recharacterization you will need to submit proper forms and documentation to your Roth IRA holder. It is best to speak with a tax professional here as well when filling out your 1040 in order to make sure you follow procedure in showing the IRS that you converted it back.
Realize with points 2, and 3, you can always amend a tax return if you have already filed by utilizing Form 1040X. The downside to filing an amended tax return is not only is it more paperwork and work then you need, but amended tax returns typically have a higher probability of getting audited. Tax returns can be amended typically 3 years after the due date of the original tax return.
Well I am not actually going to tell you how to cheat on your taxes, but I will tell you the most common ways used to cheat on taxes and why you will likely get caught using each method. The IRS system is getting more and more efficient at catching tax cheats each year. There is a chance you can get away, but statistically speaking the risk vs. the reward does not pay off. Many times individuals underestimate the IRS collection and matching system and end up in some SERIOUS trouble with very steep tax penalties.
Common Cheating Methods
Method: Underreporting Income
How it Works: If you do not report all the income you made you will pay a drastically lower tax amount. For about every $100 you underreport, you will save about $25-$30 in tax money that you have to pay. Seems pretty simple huh?
Why You Will Get Caught: Anyone who gets a W-2 or a 1099 they have to realize that a copy goes to you and a copy is also being sent to the IRS. The IRS actually has a complex matching system that is called the Information Returns Processing System. This system matches up what you reported vs. what you should have reported (as provided by whoever paid you). Yes, sometimes you do receive cash and you do not receive a W-2, but you have to realize that the IRS systems know how much it costs to be YOU, by comparing you to the averages of other people who have the same occupation as you, live in the same location etc. If your amounts differ much more than theirs, you can expect to get audited and caught.
Method: Claiming Some Extra Children
How it Works: For each child you claim you can receive a $1,000 tax credit. It makes sense, the IRS wants people to have more money to take proper care of their children and they are willing to give a very solid tax credit for it, so why not claim as many children as you can.
Why You Will Get Caught: Well now the IRS requires that each child that is claimed has a legitimate social security number. A child cannot be claimed more than once because the IRS will catch this duplicate tax credit in their tax return matching process. Many people each year try claiming children that are not theirs and do get caught.
Method: Round Up Or Down to Your Benefit
How it Works: Just round up to the closest thousand to get that few extra hundred dollars of benefit on that write off. Rounding will also make for easier calculations since you won’t have to deal with decimals.
Why You Will Get Caught: Round numbers is one of the biggest IRS red flags. The IRS system does statistical analysis on all numbers and knows it is highly unlikely to receive rounded numbers as income or in expenses, so you can expect them to check up on those numbers pretty quickly with an IRS audit.
Method: Launder Money Overseas
How it Works: It is a fact that when you make certain financial transactions in the US that the IRS is watching and even if you wanted to hide these transactions there is no way to. If you move money offshore where the US government does have the legal ability to be watching over each financial transaction that is made, then it can become easy to avoid some hefty taxes.
Why You Will Get Caught: The IRS has partnered with many state agencies to crack down on transactions that go overseas. If you ship off money to an overseas account, it is likely the IRS will now about it and they will investigate. The IRS has been cracking down hard on these types of transactions and not going light on the penalties when they do catch individuals doing this.
It is true that many people do get away with cheating on their taxes each year but they are taking some serious risks. If you look at the at taking these types of risks from an investors standpoint, the risk vs. the reward is too high for a smart investor to even consider trying to cheat on their taxes. If you are looking to shelter your money from taxes you should look into the legal forms of tax shelters and you can significantly reduce your taxable income each year.
It was reported today by USA Today that Crow Creek Sioux Tribe (CCST) in South Dakota has settled with the IRS and has obtained a loan to buy back 11.1 square miles of land the IRS seized and auctioned off last December when the CCST failed to pay about $3 million in employment taxes, penalties and interest.
It was confirmed last December that the sale of the land would not be finalized until a trial was held after the tribe’s attorneys filed a formal notice to prevent the completion of the sales until the trial was completed. The trial, that was scheduled for 5/4, has been canceled because a settlement has been reached.
When the land was auctioned last December, the IRS gave them 180 days to buy the land back at 20% more than the winning bidder. The winning bid was $2.58 million which means the tribe could purchase back the land for 3.09 million within a 180 days. Brandon Sazue, the tribal chairman, said he has received a loan for 3 million from another tribe in Minnesota.
The CCST plans to withdraw taxes from employee paychecks going forward. The reason why this whole case started was because CCST states that the Bureau of Indians affairs told them they were tax exempt. It turns out that Federally recognized tribes are, but not corporations affiliated and formed as separate entities.
Since it is tax time is upon us and many people are writing about various tax issues I would like to share some of the best tax advice out there from various financial blogs around the blogosphere. Below is a list of great articles posted in the last couple weeks from some of the top financial blogs.
What to Bring to a Tax Accountant To File Your Taxes: Ever go to your accountant and realize you forgot something? This is a good checklist of things you should consider bringing to your accountant to ensure you have everything the first time.
H&R Block at Home Review: A solid review of H&R Block software. H&R Block is one of the top tax preparation programs.
Turbo Tax Review: A thorough review of Turbo Tax tax preparation software.
New Forms This Filing Season: Well the IRS loves to make taxes more complex each year, most people won’t even realize there are new forms because of software or they use tax professions but in-case you do, this article has some good details on what is new for 2009.
What Can Happen vs. What Will Likely Happen if Taxes are Not Filed: Understand what the IRS can legally do to those individuals that did not file their taxes vs what will probably happen. If the IRS actually did put all non-filers in prison they would have to increase prisons by 10,000%.
Misc Tax Tips
How Long Should You Keep Your Financial Documents – Quick Guide: Understand what papers are important to preserve, and which papers you can toss. Use this guide to determine how long to keep certain documents for your tax filings.
IRS Tax Debt Help: Good information on what you can do if you cannot pay your taxes. Understand what you can do to significantly reduce your risk of penalties and future collection actions against you from the IRS.
14 Tax Time Tips: Phil from ptMoney asked his readers to give their best tax tips and this is what he gathered from his followers
Rules to Follow to Get Back Ahead of the IRS Game: If you have fallen behind on your taxes or have run into a problem there are 3 rules you can follow to get back ahead of the IRS. If you don’t have a problem, then use these 3 rules to stay ahead.
Tips to Avoid or Reduce the Most Common IRS Tax Penalties: Understand what the most common penalties are and how you can avoid them. Many times taxpayers incur large penalties because they don’t realize the action they are taking has such significant impact on the penalties when there are likely simple ways around it.
Tax Deductible Domains To Haiti: An Analysis: Understand how a donation to Haiti can impact your 2009 or 2010 tax return. Understand some criticisms to this donation as well.
2010 Roth IRS Conversion Rules: A good article about Roth IRS conversion rules. People can convert their traditional IRS’s, SEP IRA’s, Simple IRA’s, old 401K’s, old 403b’s into a tax free Roth IRS account.
Have a great tax advice article that I missed? Please let me know and I will review it and include it in next weeks findings (email me at admin at backtaxeshelp.com). Do you need a fresh tax article for your readers? If so I would be more than happy to guest post on your blog, just shoot me an email with and a general idea of a topic you would like.
Many Americans, believe it or not, who become unemployed or settle debt can be stuck with a State and/or Federal tax bill. It seems crazy that anyone facing such financial difficulties would be asked to pay taxes but this happens for many reasons.
Unemployment Compensation
There are many ways you could end up paying owing more taxes than you thought when you file this year. Under the American Recovery and Reinvestment Act, the first $2,400 of compensation is tax free for an individual (married or not). With unemployment, you can elect to have your taxes taken out or you can choose not to since unemployment compensation is taxable. Federal law requires that individuals who left the workforce have the option of taxes being withheld from unemployment benefits. Many states offer the same choice, but some just do not withhold taxes or tax unemployment income at all (like California). You should be mailed Form 1099-G, which will show how much unemployment compensation you received.
Canceled Debt or Settled Debt
Creditors must report debt that is forgiven over $600 to the Internal Revenue Service and to you (you should receive a 1099-C). The amount forgiven must be part of the debt’s principal as interest or penalties received would not constitute income. The IRS looks at this forgiven debt as income and will expect you to pay taxes on the amount in most cases. There are a few exceptions though.
Insolvency – If you are deemed insolvent before your debt was forgiven or settled you usually will not be liable to pay taxes on the canceled debt amount. Insolvency mean your debts are greater than your assets. To figure out what you have to report on your tax return you must first calculate your insolvency amount. For example, if you owe $40,000 in credit card debt, and have $30,000 in assets, you are insolvent by $10,000. If your creditor cancels $12,000 in credit card debt you will have to report $2,000 in income on your tax return. However, if your creditor forgives $9,999 or less you will not be held liable for any taxes. To prove insolvency you will use Form 982 and attach it to your tax return along with a financial statement that illustrates your assets (fair market value) and liabilities at the time of settlement. Keep in mind, State laws differ on this issue so be sure to check your state or call a state tax representative.
Real Estate – With a foreclosure, taxes are normally owed on the deficiency amount which can be defined as the difference between what your mortgage balance was and what the lender sold the property for. If you foreclosed on your home you, and it was your primary residence, you will not be held liable for the taxes (up to $2M) because of the Mortgage Forgiveness Debt Relief Act of 2007 (extended to 2012). However, if the property was not your primary residence (a vacation home) or you defaulted on a loan that was secured by your home but not used for home improvement you will be liable for taxes–unless at the time of the default you are insolvent of course.
If you fail to report canceled debt you will ultimately owe back taxes or have tax liabilities. In this case, you will end up receiving IRS letters and/or potentially an IRS audit which means you will incur tax interest and penalties. In many cases, the negative consequences of failing to report forgiven debt can outweigh the original benefit of having the debt canceled.
If you are already a victim of these unfortunate tax laws related to unemployment or debt settlement, and you owe back taxes, sign up for a free consultation today.
What do you think of these negative tax consequences associated with unemployment and canceled debt? Feel free to comment below.
Jose Canseco, the famous MLB All Star and slugger, has run into tax problems with the IRS and State of California. Last month, the IRS filed a lien against Canseco with the Los Angeles County California Recorder of Deeds for $121,000 and change. This latest IRS tax lien adds to the three California state tax liens Canseco has been “hit” with since 2008 giving him a total of about $320,000 in back taxes, of which about $198,000 is state related. Even in 2005, he owed the State of Mass around $32k.
Jose, it seems, has been doing everything he can since his MLB career ended to create additional revenue even though he made millions of dollars during his MLB Career. In 2005, Jose Canseco caused a stir with his book “Juiced: Wild Times, Rampant ‘Roids”, Smash Hits & How Baseball Got Big,” in which he confessed to taking steroids and pointed out others major MLB players like Jason Giambi, Mark McGwire, Juan Gonzalez and others did as well. Since then he has been present in reality television shows and even in the the boxing ring fighting Vai Sikahema and later mixed martial arts pro Hong Man Choi. Even in 2003, you could spend a day with him for $5k.
In any event, this latest tax lien is another example of how taxing authorities are making no exceptions if you fail to file or pay your taxes in full. If you are facing a tax lien, get professional help and a plan to get it released. Releasing a tax lien is in your best interests to not only get taxing authorities off your back but also to prevent the destruction of your credit.
The IRS can legally file a tax return on your behalf which is called a Substitute for Return (SFR). If this happens, you most likely will not be getting the benefit of the doubt on anything. The IRS will likely only estimate your tax liability using old W-2 & 1099 forms. They may also just use statistics of income in your area to make a guess at your income. When the IRS prepares a return on your behalf they will send you a copy to your last known address and ask you to sign it. If you don’t sign it, they will still file it on your behalf. It is never a good idea to have the IRS file an SFR for you because you will lose various rights you have and will likely end up paying way more in taxes.
The reason why the IRS will complete a tax return on your behalf is so they can begin collections against you. The IRS cannot begin collections until a tax amount has been assessed. Once a tax amount has been assessed they will have 10 years to collect that amount.
Below are the reasons why you should prepare and send in a different return than the one the IRS has prepared on your behalf.
You will likely be assessed with a higher tax bill than if claimed your actual income and deductions
The IRS can audit that year forever. If you do not sign the SFR and the IRS files that return for you, they can always hold that tax year against you
If you ever declare bankruptcy it is very unlikely that these taxes will be able to be discharged in it if the IRS files a SFR
Penalties will likely be much higher because they are charged based on the amount of tax liability assessed
If the IRS has filed a Substitute for Return on your behalf then it is in your best interest to prepare a tax return to replace that return. It is very likely that if the IRS claims you owe $25,000, you probably can get that down by about half after you apply your proper deductions and lower the penalties and interest that have been charged.
The IRS game is a game that everyone has to play whether they like it or not or whether the IRS is right or wrong. In this ongoing game many individuals will fall behind the IRS. Getting back ahead of the game is not always an easy task. The IRS is known for playing dirty and kicking people while they are down. In order to get back ahead it is important to know the rules of the game set by the IRS. Not knowing the rules is the fastest way to lose more ground against the IRS.
Some of the IRS rules are more important than others. Knowing the main basic rules can help prevent you from losing ground quickly against the IRS. Below are the common rules and in the IRS game and descriptions of how each of them can keep you down.
Rule #1: File Your Taxes – This is the most important rule of the game. Not following this rule will make it very difficult to get back ahead if you don’t follow. The penalties that the IRS charges for unfiled taxes are some of the harshest penalties that will add up 10 times faster than other penalties. This is the one rule that should not be broken and if it has been, take quick action to get your taxes filed in order limit the lead that the IRS takes on you.
Rule #2: Pay Your Taxes – This is an important rule, but not as important as rule #1. The standard penalty for not paying your taxes is 10 times less than the standard penalty to not file your taxes. There are times when this rule cannot be followed and the IRS is well aware of this and for this reason you will not be penalized that much if this rule is not complied with fully. The penalty for not paying your taxes can be reduced further by complying with rule #3.
Rule #3: Work With the IRS and Be Honest – Yes, it is true, working with the IRS can help you catch up. Penalties given by the IRS will slow if you do work with them. If you let the IRS know that you cannot pay your taxes and make an agreement to pay them back, they will reduce the penalty by 50% if you cannot pay. This agreement will allow you to pay your taxes back over time in monthly increments and will allow you to eventually catch up with them. It is very important to not hide anything from the IRS because they will penalize you even further if they are to find out, which they likely will.
The way the IRS plays the game is that they want to keep it even. They will allow you get back to even as long as you follow their rules. If you follow the rules above you can be assured that you will never get too far back in this ongoing game. This is not a fun game to play, but everyone must play it and they must play by the rules set by the IRS.
The IRS made an announcement yesterday that it is more willing to work with taxpayers this year who have become unemployed or financially strapped. In other words, the IRS is relaxing rules on income tax settlement methods such as an Offer In Compromise, which is one way a taxpayer can pay less than they owe. Moreover, the IRS will be offering taxpayers the option of meeting in person with IRS employees on certain Saturday’s at IRS offices starting March 27th. As we have stated before as a firm, the IRS wants taxpayers to be compliant and is more than willing to work with taxpayers who are communicative as well as in need.
If you find yourself in the unenviable position of owing the Internal Revenue Service (IRS) taxes and are looking for help in paying or reducing the taxes owed, use caution before enlisting the help of a company that offers tax settlement services. The IRS is sometimes willing to negotiate the amount of taxes owed through their 
Well I am not actually going to tell you how to cheat on your taxes, but I will tell you the most common ways used to cheat on taxes and why you will likely get caught using each method. The IRS system is getting more and more efficient at catching tax cheats each year. There is a chance you can get away, but statistically speaking the risk vs. the reward does not pay off. Many times individuals underestimate the IRS collection and matching system and end up in some SERIOUS trouble with very steep 
Since it is tax time is upon us and many people are writing about various tax issues I would like to share some of the best tax advice out there from various financial blogs around the blogosphere. Below is a list of great articles posted in the last couple weeks from some of the top financial blogs.
Jose Canseco, the famous MLB All Star and slugger, has run into tax problems with the IRS and State of California. Last month, the IRS filed a lien against Canseco with the Los Angeles County California Recorder of Deeds for $121,000 and change. This latest 
The IRS can legally file a tax return on your behalf which is called a Substitute for Return (SFR). If this happens, you most likely will not be getting the benefit of the doubt on anything. The IRS will likely only estimate your tax liability using old W-2 & 1099 forms. They may also just use statistics of income in your area to make a guess at your income. When the IRS prepares a return on your behalf they will send you a copy to your last known address and ask you to sign it. If you don’t sign it, they will still file it on your behalf. It is never a good idea to have the IRS file an SFR for you because you will lose various rights you have and will likely end up paying way more in taxes.
The IRS game is a game that everyone has to play whether they like it or not or whether the IRS is right or wrong. In this ongoing game many individuals will fall behind the IRS. Getting back ahead of the game is not always an easy task. The IRS is known for playing dirty and kicking people while they are down. In order to get back ahead it is important to know the rules of the game set by the IRS. Not knowing the rules is the fastest way to lose more ground against the IRS.
