A Perfect Storm

The 2000 film, “The Perfect Storm”, details the harrowing events of the fishing vessel, Andrea Gail. In the film, the ship and crew were lost at sea as a result of numerous weather elements coming together to form a force of nature that was unstoppable. A similar storm may be forming with respect to the enforcement and collection of unpaid payroll taxes.

A year ago, the Treasury Inspector General For Tax Administration (“TIGTA”) published a report in which they indicated a greater need for a focused strategy in effectively addressing egregious employment tax crimes. In the report, TIGTA recommended that criminal prosecution be sought by the Department of Justice more frequently to create a greater general deterrent.

Additionally, on March 2nd 2018, Deputy U.S. Attorney General Rod Rosenstein stated that the Trump administration would vigorously pursue offenders that fail to pay payroll taxes. The criminal offense associated with failing to pay payroll taxes is set out by 26 U.S.C.§ 7202. It states that “Any person required under this title to collect, account for, and pay over any tax imposed by this title who willfully fails to collect or truthfully account for and pay over such tax shall, in addition to other penalties provided by law, be guilty of a felony and, upon conviction thereof, shall be fined not more than $10,000, or imprisoned not more than 5 years, or both, together with the costs of prosecution.”Boat in Pond

These reports and comments are typically heard as rhetoric intended to encourage compliance, however a recent case from Wisconsin brings potential for concern. While prosecution rarely happens for minor offenses of 26 U.S.C.§ 7202, a Wisconsin business owner, Gary Auerswald, was recently targeted for prosecution by the US Attorney from the Western District of Wisconsin.  What makes the case unique is that the amount in question was only $24,482.43 and only for the 4th quarter of 2014. While there may be more to the story that is unknown, this may also be the start of the crackdown Rosenstein spoke of.

One thing is for certain; there has never been a more important time to get in front of back taxes, especially unpaid and unfiled payroll taxes. If you think your business may have delinquencies, do not hesitate to contact us and see how we can help you get out in front of any delinquencies and not be another target for the US Attorney to prosecute.

Tax Liens & Credit Reports: Will you benefit with a higher credit score?

Do you have a tax lien?  If so, how it impacts your credit profile may soon change.

The three major credit reporting agencies (TransUnion, Equifax, & Experian) have come to the realization that they cannot include tax lien information on consumer credit reports and still be in compliance with the Fair Credit Reporting Act, 15 U.S.C. § 1681 (“FCRA”).  The FCRA requires credit reporting agencies to “follow reasonable procedures to assure maximum possible accuracy of the information concerning the individual about whom the report relates”.  Simply put, credit reporting agencies have found it too costly to accurately report tax liens on consumer reports and will therefore no longer include this information beginning April 2018.Wooden Gavel

It is important to understand how a tax lien impacts your financial profile to determine whether this new development will benefit you.

Credit reporting agencies compile data and then this data is used to formulate your FICO score.  The FICO score was developed in 1956 by Bill Fair and Earl Isaac, to measure consumer credit risk and is used by most financial institutions to make decisions on whether to furnish or deny credit.  Since your FICO score is based off of reporting by the three major credit bureaus that will no longer include tax liens, it is likely you may see an increase in your credit score.  Depending on the type of credit you are seeking, your FICO score can play a major role in determining the cost and amount of credit you are eligible for.  If you received credit of any type while you had a tax lien on your credit report, you may want to consider talking with your lender to see if you are eligible for a rate reduction.  They will likely pull a new credit report and that report should no longer include your tax lien, thereby increasing your score and reducing your credit risk.  This is likely to work with loans that involve a less intensive underwriting process.

Loans that are typically reviewed with greater scrutiny (e.g. mortgages) may not be impacted in any way as a result of this new development.  Lenders will still be privy to tax lien information if they seek it out specifically.  Companies such as LexisNexis offer reports on liens and judgments and claim to be accurate on over 99% of their reports.  If your lender specifically seeks out this data, the removal on your credit report will likely have zero impact on your ability to secure or renegotiate a loan.

If a tax lien is still creating problems for you, there are permanent solutions to find relief.

Form 12277 must be filed with the IRS in order to request a tax lien be withdrawn and no longer reported anywhere.  While anyone can file Form 12277, the filing begins a formal review process that is most successful when navigated by a seasoned tax professional.  At 20/20, we have an excellent track record of formally having tax liens withdrawn.  Please contact us for a consultation to discuss the merits of your tax lien and how we can assist you in obtaining a formal withdrawal.

 

Tax Tip: What to do post resolution

Whew! You made it through to the other side! Congratulations on navigating the difficult maze of regulations, processes and emotions to successfully finalize a resolution to your tax problems. Time to relax, forget about the past and move on to a better future, right?

Well, not exactly. During 20/20’s two decades of working with clients, we’ve seen the pitfalls that can await taxpayers on the other side of the resolution process. We strongly advocate that our clients create a “post-resolution plan” to help them steer clear of future problems. Without a thoughtful approach to your new reality, the chances of needing additional help down the road increases.

The first step is to make certain you understand all aspects of your resolution, any payment plan that may be in place, the expected duration of the plan and – perhaps most important – how you will pay it. Don’t wait until your first payment is due to fully comprehend everything you agreed to in the resolution. Delaying this step is what typically leads to a first mistake: missing a payment (something you don’t want to do).

To avoid missing any payment deadlines, consider scheduling a direct deposit. If you choose to use traditional U.S. mail for your payments, remember that each payment must be received by the actual due date. Unlike filing a tax return, payments are not considered to be on time by their postmark. If you opt for snail mail, make certain to leave enough time for the post office to punctually deliver the payment.

A lot of managing your resolution just comes down to staying on top of it and identifying problems before they occur. At 20/20, we have been very successful at setting up manageable resolutions for clients for 20 years. We’ve found that very often, the root cause of problems can be traced back to a taxpayer’s individual habits, business practices or organizational skills.

While some businesses struggle to stay current due to genuine financial hardship, we often see business owners and officers neglect to establish effective business practices. One of the most effective ways to ensure compliance is to engage the services of a payroll firm. At 20/20, we partner with payroll and sales tax solutions in order to assist our clients in developing good and effective business practices. It’s important to make an honest assessment of your business and lifestyle to see if these solutions are right for you and your company.

Ask yourself the tough questions: Is your business undercapitalized? Are you overspending? Are there lifestyle changes you should consider to help keep you on better financial track? All of these are important considerations to study to keep you moving forward and avoid future tax problems.

Light at the end of the TunnelFinally, now that you have what probably feels like a new lease on life, don’t take it for granted. Keep vigilant on your resolution and be proactive if and when you have any problems surrounding the payment terms. Remember that communication is key to staving off future issues with the IRS or other tax authorities. Don’t hesitate to speak up when problems arise.

If you’re still concerned about the ability to successfully manage your resolution and steer clear of future problems, 20/20 offers a monitoring program called POA+. POA+ is a monthly, pay-as-you-go service that allows 20/20 to maintain an active role in your tax resolution plan. Our team will be able to receive and monitor notices from the taxing authorities to promptly address issues that arise as well as remain available to answer questions.

However you proceed, enjoy the relief that comes from knowing you are managing your tax obligations and taking the best care of your business. And be certain to stay on top of your resolution requirements! If things ever get out of hand again, remember that 20/20 is here to help.

Tax Returns: Why We Procrastinate

A quick online search of “tax returns” brings up all kinds of conflicting advice. Should you file early? Should you wait for the deadline? Is it damaging to file an extension? There are “experts” out there who will give you the opposite answer for each of the three questions. It’s no wonder people want to cover their heads and just wait until May. But what exactly is causing so many people to delay?

If you fall into one of the above categories (or you’ve cleverly created a new reason to procrastinate of your own), don’t worry. You’re in good company. According to the IRS, about one-third of Americans will wait until the last minute to file their taxes. In fact, in 2016 more than 29 million individual returns were filed between April 8th and Tax Day (this year it falls on April 17, 2018).

So kick back, relax and take your time. After all, it’s only March.

Tax Pros: Help Your Client Understand the Options

The most common resolution for a taxpayer facing an unpaid tax liability with the Internal Revenue Service (IRS) is an installment agreement.  And yet despite the fact that it is the most widely used resolution, the installment agreement is still often mired in a debate between fact and fiction. Let’s get to the bottom of some of the IRS installment agreement options so we can guide taxpayers on the road to success.

Before getting into the details of IRS installment agreements, let’s make an important distinction about tax types. Individual income tax has the most flexibility when dealing with the IRS. Unpaid employment taxes, on the other hand, are heavily scrutinized by the IRS and more often have resolutions based on strict expense standards and a determination of ability to pay. In this discussion let’s focus on the individual and more standard opportunities.

As I just noted some IRS installment agreements are based on ability to pay. Other, more routine agreements, are often referred to as streamlined because of the ease of processing involved in setting them up. These can be based strictly on the amount owed and set up over a defined period of time. Routine agreements are great considerations for taxpayers that are in compliance, have few complications and can afford to pay the predetermined amount.

Having the knowledge of the various types of basic IRS agreements is a great starting point for resolving a taxpayer’s unpaid liability. But, it’s just that, a starting point. The agreements should not be misconstrued as the taxpayers only alternative, rather a possible path of least resistance. And as straight forward as these agreements are, a practitioner eyeing the long term success of the agreement needs to consider much more. There are many considerations that should come in to play when thinking about whether to enter into a repayment plan with the IRS. Here are just a few thoughts to consider:

  1. Has a Notice of Federal Tax Lien already been filed against the taxpayer? This is typically done fairly early on the collection process. If it has not been done there is a good chance that the lien can be deferred by entering into a streamlined agreement.
  2. Can the taxpayer afford the amount that will be required by the agreement? If not, entering into a streamlined agreement will result in a default.
  3. Is an installment agreement the appropriate strategy based on the circumstances? Absent any pressure from the IRS, the taxpayer may be better served by going through other channels especially if there is a doubt as to whether the tax is really owed.
  4. Is the timing right? Imagine a scenario in which the taxpayer owes for 2014-2016. Before entering into an agreement for those years one must consider the implications of 2017 and 2018.

In the end, the mere existence and availability of these streamlined agreements does not mean they are the appropriate resolution to the tax liability. Although the IRS might prefer that a taxpayer simply walk in to one of the easy offerings it is important for a tax practitioner to evaluate the totality of the taxpayer’s circumstances to properly put together an effective, winning strategy.

Fight Back Against Scams

It’s tax season, which means that tax scams are on the rise. It’s likely you – or someone you know – has received a suspicious email, phone call or even snail mail and wondered “can this be real?” If you answered “no,” congratulations! You just saved yourself a mess and headache. But unfortunately, thousands of Americans lose millions of dollars as well as their personal information to tax scams each year, according to the IRS.

It’s why the IRS regularly issues “Scam Alerts” to warn taxpayers against the potentially damaging scams. What’s even more alarming is that rip-off artists working to rid you of your money or your identity are finding increasingly clever ways to reach into your pocket. In addition to ordinary taxpayers, scams now target tax professionals, human resource/payroll departments and others. Nearly any entity that might possess your private information can be subjected to a tax scam.

Most recently, an IRS Scam Alert warned of a complex scam where criminals steal client (i.e., taxpayer) data from tax professionals and then file false tax returns under these clients’ names, using the clients’ real bank accounts for refund deposits. Scammers then use a variety of different methods to take back the money once it’s deposited – sometimes even posing as IRS officials and threatening the victims. You can read the full Scam Alert here.

So, what can you do to protect yourself? The first step is to know how the IRS operates and to become somewhat familiar with the types of scams out there (although they are constantly changing and adapting): tax tips tray

IRS protocols. The Internal Revenue Service will NEVER initiate contact with taxpayers by email, text message or social media platforms to request personal or financial information. If this happens to you, it’s a surefire sign someone is trying to scam you.

Deceitful practices. As mentioned above, tax scams come in all kinds of forms – and are delivered to victims in snail mail, email, text message or phone calls. Don’t be fooled by professional looking letterheads and logos or official sounding tax issues raised in the communication. If you have any doubt at all as to its authenticity, do not respond in any way and contact someone you trust to verify the communication.

Variety of scams. As the earlier example demonstrates, scam artists are a clever bunch. There are a variety of ways they will try to wriggle personal information out of you. Whether by asking you to provide private information (“phishing”), impersonating IRS personnel via telephone calls or directing you to official looking websites that infect your computer with malware (making you vulnerable to hacking), criminal scammers will stop at nothing to steal your money.

So consider this a primer to the basics of tax scamming you need to know to protect yourself and your private information. Remember that the IRS will not contact you and request private information arbitrarily via email or text. And finally, always say no to information requests that you are not absolutely, 100 percent positive are authentic.

To get more information about tax scams and how to identify them, read this comprehensive IRS Tax Scam Alert.

Unenrolled Return Preparers Win Again

Tax practitioners with unlimited representation rights before the Department of Treasury, such as Enrolled Agents, CPAs and Attorneys, are clearly engaging in “practice before the Internal Revenue Service” in the course of their work. As such, they are regulated by Circular 230, which is in turn enforced by the Office of Professional Responsibility. For unenrolled return preparers, however, the definition of “practice before the IRS” is a lot less clear.

IRS Red Light_smallFor nearly a decade, the IRS has worked to take a stronger role in the oversight of tax practitioners, specifically looking to bring unenrolled tax preparers under its authority. In 2017 the IRS suffered yet another blow in this effort when the courts decided a three-year old case.  On September 8, 2014, plaintiffs Adam Steele, Brittany Montrois, “and a Class of More Than 700,000 Similarly Situated Individuals and Businesses” filed a class action suit against the federal government seeking to recover allegedly unlawful license fees paid to the Internal Revenue Service (IRS)(Erbs, Forbes, 6.5.17).

The 2017 decision in Steele et al. v. US by Judge Lamberth upheld the IRS’ right to use the PTIN system to register and track tax return preparers.  However, Judge Lamberth stated that the IRS could not charge a fee for the issuing PTINS because the PTIN system did not constitute a “service or thing of value.” In fact, the Court argued that the opposite may be true: the real benefit of the PTIN “inures to the IRS, who, through the use of PTINs, may better identify and keep track of tax return preparers and the returns that they have prepared.” (Erbs, Forbes, 6.5.17).

Not only was the decision the latest example of fallout from the highly publicized Loving decision of 2014, which struck down the IRS’ attempt to regulate tax preparation, it comes at a steep cost. The decision states that the IRS must provide a full refund for PTIN fees paid to each class member. Estimates indicate the amount to be as high as $175,000,000.

Despite defeat the IRS seems committed to bringing more oversight to the tax preparation industry. On IRS.gov the IRS continues to emphasize the Annual Filing Season Program (AFSR), an initiative that aims to recognize the efforts of non-credentialed return preparers who aspire to a higher level of professionalism. Moreover, beginning Jan. 1, 2016, there were changes to the representation rights of return preparers.

The IRS goes on to make the point that attorneys, CPAs, and enrolled agents will continue to be the only tax professionals with unlimited representation rights, meaning they can represent their clients on any matters including audits, payment/collection issues, and appeals.

So while the unenrolled tax preparer community continues to prevail in court, when it comes to tax preparation clearer lines are being drawn on what roles these tax pros can play in the system. Unenrolled tax preparers with clients that have audit, collection or appeal issues should help those taxpayers find a competent tax professional with unlimited representation rights.

Pay Your Taxes, Protect Your Passport

If you’re planning on taking an international trip anytime soon, you may want to make certain your taxes are paid in full – or that you have entered into a payment agreement with the Internal Revenue Service for any back taxes owed. If not, your passport could be at risk.

That’s the message the IRS delivered in January when it announced implementation of new procedures affecting individuals with “seriously delinquent tax debts.” According to an IRS press release, the new enforcement policy impacts primarily those owing $51,000 or more in unpaid back taxes for which the IRS has filed a Notice of Federal Tax Lien and the period to challenge it has expired – or the IRS has issued a levy.

“This enforcement action has been in the works for a number of years and is the result of legislation passed in 2015 that requires the IRS to notify the State Department of taxpayers owing a seriously delinquent tax debt,” said Brian Biffle, president of 20/20 Tax Resolution. “However, many taxpayers impacted by this legislation may not be aware of it or may not understand the serious implications of it.”

US PassportFailure to pay unpaid taxes or create a payment plan could lead to denial of a passport application or even denial to renew a passport, according to the IRS. In some extreme cases, the FAST Act – which was signed into law under the Obama Administration in December 2015 – requires the State Department to revoke a passport for unpaid taxes.

“This is very serious for those who travel internationally, especially for a person whose business depends upon international travel,” Biffle said. “To be absolutely certain you are safeguarded from these enforcement actions, taxpayers that owe unpaid taxes should be certain to come forward and deal with any debt they might owe.”

This same legislation, known as the “FAST Act” (for “Fixing America’s Surface Transportation” Act), details the ways travelers can avoid the new passport constraints:

  • Pay any unpaid tax debt in full
  • Pay the tax debt under an approved installment agreement
  • Pay the tax debt under an accepted offer in compromise
  • Pay the tax debt under the terms of a settlement agreement with the Department of Justice
  • Having requested or have a pending collection due process appeal with a levy
  • Having collection suspended because a taxpayer has made an innocent spouse election or requested innocent spouse relief

According to the IRS press release on the matter, the following taxpayers won’t be at risk of this new enforcement program:

  • Any taxpayer who is in bankruptcy
  • Any taxpayer identified by the IRS as a victim of tax-related identity theft
  • Any taxpayer whose account the IRS has determined is currently not collectible due to hardship
  • Any taxpayer located within a federally declared disaster area
  • Any taxpayer who has a request pending with the IRS for an installment agreement
  • Any taxpayer who has a pending offer in compromise with the IRS
  • Any taxpayer who has an IRS accepted adjustment that will satisfy the debt in full

To review the full IRS press release, visit the IRS website.

[INFOGRAPHIC] NEW YEARS RESOLUTION: PLAN NOW FOR 2018

According to IRS data, nearly one third of Americans wait until the last minute to file their taxes. With numbers that high, it’s no surprise that our clients are often a part of that percentage. The delay is primarily due to insufficient preparation – and the dread that comes from facing all the paperwork scattered throughout your office. But it doesn’t have to be this way.

Here are the most important things you should resolve to do NOW to ensure you are setting yourself up for a successful year.

Questions about your unique situation? Learn more about ways we can help or feel free to contact us at any time!

2017 Year in Review: Top Tax News

No matter your perspective on the recent passage of tax reform, there’s no question it is the biggest tax story of the year – and perhaps of the decade. The estimated $1.5 trillion bill is being touted as the savior of the middle class and simultaneously denounced as just another exercise in trickle-down economics. Time will tell how the expansive bill shakes up the economy, but with provisions impacting everything from health care to the standard deduction, the reform is sure to impact just about every American in some way.

Business man holding TAX on blurred abstract background

The rest of 2017’s tax stories are not quite as dramatic, but important nonetheless. Here’s a rundown of the top tax news of the year:

  • Employment taxes: The IRS stepped up efforts to combat delinquent employment taxes in the wake of a scathing report in May from the Treasury Inspector General for Tax Administration. The IRS watchdogs reported that the number and size of payroll tax violations is going up, and IRS penalties alone have not been enough to stop the trend. Although the willful failure to remit employment taxes is a felony, there have historically been fewer than 100 criminal convictions per year.
  • Use of private debt collectors: In June it was announced that the IRS began using private debt collectors to try and recoup overdue money owed the government. The IRS program engages four private-sector collection agencies to pursue the toughest debt. Generally these are cases where money has been owed for multiple years and the case is not currently being worked by federal employees.
  • Tax reform impact on delinquent taxes: A change in pass-through taxation, which impacts taxpayers who have some or all of their business income taxed on their individual return, could aid S corporations, LLCs, partnerships and sole proprieterships. As a result, these entities might have fewer challenges meeting their tax obligations. However, tax reform is not expected to have a major impact on tax resolution needs. As always, “life happens” so some people will owe – and some of those people will inevitably need tax resolution services.

The biggest story of the year may be that nothing really changes. The need to have a solid tax plan in place for individuals and businesses is still essential. Be certain to plan ahead for tax obligations, monitor your business throughout the year to guard against revenue ebbs and flows – and make certain you always have a plan to pay.

Happy New Year to you and yours, and best wishes for a profitable 2018!