Author: 20/20 Tax Resolution

Glitch in IRS Direct Debit Installment Agreements

Direct debit installment agreements (DDIAs) allow taxpayers to make payments through a monthly direct debit from their bank or other shared draft account. From 2011 to 2015 the overall installment agreement default rate was often twice as high as the default rate of DDIAs. Yet, despite the apparent overall success of the DDIA program, we have found a recent pattern of issues with these agreements.

For years, our firm has been establishing resolutions for taxpayers around the country. We have found that monitoring the agreement after it has been established to ensure that both the IRS and the taxpayer abide by the terms set forth in agreement is crucial to the long-term success of these resolutions. Recently, in the course of our monthly monitoring of an agreement set up in May of 2015, we discovered that the plan was being defaulted. This was curious because the taxpayer had not missed any monthly payments or missed or made any other tax payments late.

In February, the IRS US Mailboxissued its formal default letter, Notice CP523 “Notice of Intent to Levy – Intent to Terminate your Installment Agreement” to the taxpayer. The notice stated that the taxpayer’s installment agreement payment was overdue and that the agreement would be terminated due to missed payments.  The explanation for the default raised even more questions because research illustrated that the IRS had not even attempted its most recent draft of the taxpayer account.

The events prompted extensive research with IRS Customer Service. Eventually, it was determined that due to an IRS error there was, in fact, no attempt made to debit many taxpayer accounts on DDIAs. The IRS then compounded its error by erroneously issuing default notices to the taxpayers whose payments were not drafted as though the taxpayers themselves had missed the payments.

In an ironic twist, at almost the exact same time that we discovered the IRS error in our case, the Treasury Inspector General for Tax Administration (TIGTA) released a report titled Direct Debit Installment Agreement Procedures Addressing Taxpayer Defaults Can Be Improved. In short, the report found that, “As a result, systemic DDIA defaults increased taxpayer burden because taxpayers incurred additional interest on their unpaid balances. In addition, revenue collection was suspended until the DDIAs were restructured, and some were not reestablished.” 

Thankfully, we learned through the IRS that letters outlining the erroneously issued default notices would be mailed to all taxpayers affected by the glitch. All installment agreements erroneously defaulted would be reinstated with payments continuing as usual moving forward. Despite the recent hiccup and the concern of TIGTA with DDIA defaults, the program still offers the most reliable way for taxpayers and the IRS to enter into lasting agreements.

[Infographic] 5 Tax Mistakes You Don’t Want to Make

Confronting an actual or potential tax liability with the IRS can be worrisome and overwhelming — it’s important to know what mistakes to avoid. There are may nuances to understanding how to work though a situation effectively. But, there are also some very simple rules that will be beneficial to both you and your business in the long run.

As a business owner, this infographic outlines five tax pitfalls that you DON’T want to make when dealing with a liability.

Five Tax Mistakes You Don't Want to Make

There are solutions available to taxpayers who owe taxes. The key to making the experience as manageable as possible is knowing a few easy tips about what to avoid.

You can always learn more about the ways in which we can help you and your situation, or feel free to contact us with any questions.

To download a high-resolution version of this infographic, please click here. 

[Infographic] 7 Types of Installment Agreements

Installment Agreements (also known as Payment Plans) are the most accepted and common resolution strategy with the IRS. It takes experience, time and preparation to successfully negotiate an Installment Agreement and no negotiation goes exactly like the other.

We’ve created this simple guide to help illustrate the various types of Installment Agreements that may be available to you depending on your particular situation.  Take a few minutes to better familiarize yourself with their differences — and remember, we are always here to help.

7 Types of Installment Agreements

Learn more about ways we can help or feel free to contact us with any questions.

To download a high-resolution version of this infographic, please click here

20/20 Representative Teaches at NAEA’s 2015 NTPI Conference

20/20 Tax Resolution’s Vice President, David Miles, EA, taught two different classes at the National Association of Enrolled Agents (NAEA) NTPI 2015 National Conference in Las Vegas Nevada on August 3rd.  As an outstanding education provider, the NAEA developed the National Tax Practice Institute (NTPI) — a three-level program of study that covers all facets of representing clients before the IRS.

Miles describes NAEA’s NTPI conference as, “an extraordinary opportunity to come together with some of the most experienced and talented collection representatives in the country.  Being able to participate as an instructor alongside these gifted and talented individuals was an honor.”  In his Level 1 class, Miles works to establish a foundation for all that practice before the IRS Collections Division.  In his Level 2 Appeals class, there is a more acute focus on the nuances of the IRS’ Collection Appeal programs coupled with practical problem-solving lessons.  When asked about gauging the success of each specific course, he explains, “The real success of the conference are the attendees, which includes Attorneys, CPAs, Enrolled Agents, etc. Their energy and commitment to practice is truly inspiring.  My single focus as an instructor is to be good enough for them.”

With over 18 years of tax representation and consultation experience, Miles continues to be an active educator for other tax practitioners on both a local and national level.  20/20 Tax Resolution is proud to be at the forefront of the tax representation industry and recognizes the importance of building relationships and networks while attending this annual conference.  When reflecting on these recent events, Miles sums it up perfectly, “The best part of attending NAEA’s NTPI conference is seeing practitioners throughout the country sharing experiences and knowledge for the sole purpose of improving our service to our clients.  It’s a unique and vital camaraderie.”

20/20 Attends the 2015 Nationwide IRS Tax Forum

On July 29, 2015, 20/20 Tax Resolution’s Vice President, David Miles, EA, and Senior Associate, M. Anita Ward, EA. were in attendance of the 2015 Nationwide IRS Tax Forum in Denver, Colorado.  Taking place in the Hyatt Regency Denver at the Colorado Convention center, the forum featured a full agenda of the latest tax law information which covered key federal and state tax issues from the IRS and leading industry experts.  On top of that, the event provided numerous networking opportunities and exhibits featuring the latest products and services for those in tax preparation and representation industries.

The 20/20 team helped to run the National Association of Enrolled Agents (NAEA) booth.  Throughout the day, they were able to successfully promote the Enrolled Agent (EA.) designation while simultaneously informing the tax professionals in attendance of the forum about the valuable resources offered by the NAEA.  Staying abreast of IRS updates, advocating for sensible and more permanent changes to the tax code, and providing a forum for EAs to have technical questions answered by other EAs were just a few topics that were covered by 20/20 representatives throughout the course of the day. 20/20 Tax Resolution is a proud partner of the NAEA and was excited to be able to attend such a great event!

The Beginners Guide to Collection Representation

20/20 Tax Resolution’s Vice President, David Miles, EA, was recently published in The National Association of Enrolled Agents (NAEA) July-August 2015 bi-monthly publication, EA Journal.  This prestigious publication allows members of the NAEA to stay up-to-date on any industry trends, tax updates and association news.

In the article, The Beginner’s Guide to Collection Representation, Miles focuses on the nuances that go into effective collection representation work.  He explains that the goal of this piece is to, “give practitioners just beginning in collection representation the tools necessary to build a solid foundation of their practice. This foundation is critical to ensuring proper representation for taxpayers while practitioners continue to gather experience over time.”  

This will be the fourth time in the last five years that Miles has been published in the EA Journal.  Click here to read the full article.

Don’t Be Penalized for Foreign Bank Accounts

Did you know that you could find yourself with an unexpected tax penalty for not informing the IRS that you have a bank account abroad? Although this rule only applies if your total amount on all foreign accounts at any time of the calendar year exceeds $10,000, it has to be obeyed even if these accounts don’t produce any taxable income for you. All you have to do to stay out of trouble is to file IRS form 114, Report of Foreign Bank and Financial Accounts, also known as FBAR, along with the completed schedule B of your Income Tax Return (form 1040). Failure to do so results in the highest tax penalty the IRS can assess.

There are already numerous cases when taxpayers have paid millions of dollars to the IRS to satisfy FBAR penalties. A similar thing happened to Carl Zwerner, a director at First State Bank in Florida. This 87 year old taxpayer now owes the IRS over two million dollars in penalties for not reporting the annual value of his Swiss bank account. This amount was calculated as 50% of the annual value of this account in 2004, 2005 and 2006. Although Mr. Zwerner’s case is more complicated than just a failure to file form 114, it is still a good example of the consequences of non compliance with IRS rules.

The IRS form 114 can be filed online through the Bank Secrecy Act (BSA) E-Filing System at It is an easy to follow program that allows you to submit all BSA forms and to track the status of your returns online. The IRS also provides help with filing FBAR forms over the phone at 866-270-0733.

In addition, in January 2012 the IRS started a new offshore voluntary disclosure program for those taxpayers who failed to report their offshore income and foreign bank accounts in previous years. Although participating in this program will not eliminate all penalties, it is still a way to minimize the chance of criminal prosecution for failure to disclose foreign accounts and assets.

Time to File 2013 Tax Return

As we all know, April 15 is the deadline to file Individual Income Tax return for the previous year. More than 75 million taxpayers have already submitted their returns, but the IRS is still waiting for about 149 million people to file. If you cannot meet the April 15 deadline you will have to apply for an extension, which is automatically granted by the IRS upon receipt of the completed form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.

Filing an extension allows you to send your Income Tax return after the deadline, but no later than by October 15, 2014 (for US citizens or residents who live in the US), and by June 16, 2014 (for those who reside outside of the country but have US tax obligations). It is important to understand that this extension is only applied to the late filing, and does not allow any late payments for 2013 Individual Income Tax return. Therefore, the best thing to do is to estimate how much tax you might owe for 2013 and send a payment to the IRS before April 15, 2014.

If the IRS does not receive your payment before April 15, your tax liability will be increased by interest and penalty for the late payment, which starts from 0.5% of any tax due amount that was not paid by April 15, and increases on a monthly basis until it reaches 25%. Although the IRS might forgive this type of penalty if a taxpayer can show a reasonable cause for not making a payment, it is still a good idea to make all payments on time.

If you cannot make a payment, and don’t have a good reason that the IRS might take into consideration to abate your late payment penalty, you should at least apply for an extension to file, because the IRS penalty for the late filing is higher that a penalty for the late payment. It starts from 5% of any unpaid tax and goes up until the whole amount is paid in full. In addition, in some cases it might be more difficult to show a reasonable case for not filing your returns than for not being able to make a payment on time.

Could the IRS pass Tax Debt to Collection Agencies?

Only a few years after the IRS made a decision to stop using private collection companies for collection of outstanding federal taxes, this topic  was raised again by the Chairman of Senate Finance Committee Ron Wyden in his Expiring Provisions Improvement Reform Act. This extenders bill, if approved, will force the IRS to delegate some of the tax collection actions to the private debt collectors, a practice that, according to the IRS, already failed twice since 1996.

The requested modification obligates the IRS to involve private companies in collection of taxes from those taxpayers whose accounts have been placed into inactive status for one of the following reasons: the IRS failed to find the taxpayer, did not have enough resources to proceed with collection, or simply did not contact the taxpayer for a year after a delinquent account was assigned to the IRS collections.

Although this measure seems to be an attempt to help the IRS to retrieve the debt and to free up a large number of the IRS employees who can then become available for other tasks, the IRS officials believe that implementing this strategy will be more harmful than beneficial. The president of the National Treasury Employees Union, Colleen M. Kelly, stated that Congress should not force the IRS to use this option because it already cost the US government millions of dollars in a past. Nina Olson, National Taxpayer Advocate, agreed with Kelly, in her 2013 Report to Congress, and emphasized the fact that the IRS agents collect 62 percent more in taxes than private collection agencies.

Obamacare – The New Tax Penalty

The IRS has plenty of penalties it can impose for late filing, late payment, interest, and much more. Starting on the 2014 tax returns there’s a new penalty the IRS can impose based on the Patient Protection and Affordable Care Act, commonly known as Obamacare.

With a few exceptions, everybody is expected to have minimal qualifying health insurance in place by April 1st 2014. It doesn’t matter how you obtain the insurance; you may already have it through your work, Medicare, or Medicaid. For some people, subsidies are available through their state’s health insurance marketplace (also called the exchange).

If you don’t have health insurance in place, you will have to pay a fee on your Federal income taxes for every month you’re without coverage. For 2014, this fee is $95 per adult (half for a child) up to a maximum of $285 per family, or 1% of your taxable income, whichever is greater. This penalty goes up in subsequent years, being 2% of income or $325 per person in 2015, and 2.5% of income or $695 per person in 2016. After that the amount will continue to be adjusted for inflation.

Of course, you may be exempt from these penalties. For example, you’re allowed a “gap” of up to three months without coverage during the year. Or, perhaps you fall under the hardship conditions of being homeless, evicted, the victim of domestic violence, etc. Or, maybe your religion objects to insurance. This is a complex law, spanning over 1,000 pages, but it will apply to most people. This is where it gets interesting.

When you’re completing your 2014 tax return (in 2015) you’re expected to state whether, or not, you have qualifying health insurance. However, there does not appear to be anything in place that will enable to IRS to check this information. It’s difficult enough for the IRS to confirm all the standard income and expense tax form information, but the IRS does have procedures in place and “red flags” suspicious returns.

Even if everybody is completely honest and states when they do not have insurance and owe the new penalty, the IRS still has the problem of collecting the money. Unlike other debts that we discuss on 20/20 Tax Debt Help, for the Obamacare penalty, the IRS cannot issue any liens or levies. In fact, the only way they can collect the money (if somebody chooses not to pay it) is by subtracting it from any tax refund.

Now, we’re not suggesting for a moment that you should try to not get health insurance or try to avoid paying the penalty. However, it is clear that there are serious issues with Obamacare collection procedures and the burden it will place on an already overtaxed (pun intended) IRS.