“I’ve Got My Tax Liability Under Control”

Over the nearly 20 years that I have been in practice I can’t tell you how many times I spoke with taxpayers believing that they had their resolution under control by making voluntary payments.  These soon-to-be clients suffered from all too common misperception that these payments would in some way deflect attention from their case or cause it to be put to the bottom of the collection pile.

Unfortunately, they couldn’t be more wrong and it’s usually a levy or lien that brings about the realization.  Yes, of course, voluntary payments are important to paying unpaid taxes.  In fact, they are the first thing I recommend in nearly every case, especially employment tax cases.  But to think that voluntary payments alone will alter the course of one’s case can be a huge miscalculation.  State and IRS collections are done by system.  They’re not whimsical or based on good faith.  Until a tax liability is paid in full or a formal resolution, such as installment agreement, is agreed to the collection process moves forward exposing taxpayers to liens and levies.

Just recently, in fact, I encountered this very situation.  A taxpayer came to me at the end of last year irate about being levied by the IRS.  The company owes the IRS just over 100k in employment taxes but the owner of the company had been making voluntary payments of $2,000 per month.  He hadn’t spoken with the IRS but had noted less mail was coming since beginning the voluntary payments.  He was angry that the levy followed his very obvious effort at resolving the situation.  Unfortunately, this taxpayer had assumed that his payments had directly influenced the IRS’ lack of urgency with his case.

Immediately, I began my effort of educating the taxpayer about the collection process.  Most every state and definitely the IRS has a set protocol for collecting unpaid taxes.  The process begins with notification of a balance due, letters with an increasing demand for payment and ultimately assignment to a field personnel for collection.  Every collection case goes through this protocol until the liability is paid or a collection determination is made.  A collection determination means the state or IRS’ decision on how the liability will be resolved.  A tax practitioner’s goal is to mold and influence that collection determination within the rules to their clients’ best interests.

The point here is that making voluntary payments, while advisable, does not alter the collection process.  Short of full paying the liability proactive and consistent contact with the authorities is not just recommended but required in order to ensure that a client remains protected from enforcement action.

If you find yourself in this situation, it is now more important than ever to get in contact with us. We are always here to answer any questions that you might have about your particular situation. Make it a point to contact us today so that we can get your life back on track.

Spending Bill Increases IRS Funding

In a rare success story relating to the IRS budget, President Obama signed into law on Friday a spending bill that provides an increase in funding to the Internal Revenue Service.  According to an article written for The Hill, Naomi Jagoda explains how the $1.1 trillion omnibus provides an additional $290 million for the IRS, an increase of 3 percent over the last fiscal year.

The IRS budget has been in a free fall ever since the controversy erupted over the agency’s heightened scrutiny of Tea Party groups.  In fiscal year 2015, Republican law makers continued the trend by slashing another $346 million – a budget at its lowest level since 2008.

The Center on Budget and Policy Priorities conducted an analysis of IRS numbers back in September.  The analysis notes that since 2010, the IRS’ budget has been cut 18% after adjusting foMoneyr inflation.  The result is over 13,000 fewer employees, lowest individual and business audits in more than a decade and fewer than half of customer service calls being answered.

In granting the boost to the budget, lawmakers specified that the funding is to be used for “taxpayer services to ensure that the agency responds to taxpayer questions in a timely manner, and to improve fraud detection and prevention and cybersecurity,” according to a summary from Republicans on the House Appropriations Committee.  Despite the compromise that lead to the additional funding, tensions are still running high between Republicans and the IRS with four articles of impeachment introduced in October still looming over the Commissioner of the beleaguered agency.

While the funding increase seems to signal a sign that some recognize the difficulties that the political infighting has created for taxpayers and practitioners, there is still quite a bit left to be done before the IRS can operate in a more proactive capacity.  What’s more, new laws will inevitably stretch the IRS even further than before. For example, the Affordable Care Act, private debt collector provision of the transportation bill as well as initiatives like the passport revocation program and return preparer licensing.  To address meaningful reform within the IRS, lawmakers have to restore the IRS’ budget to a level that allows it to realistically address its mission.


New Law Broadens IRS Enforcement

Fun in the sun in Mexico?  Maybe not if you owe the IRS back taxes.  On December 4, 2015, President Obama signed into law the Fixing America’s Surface Transportation Act, also known as the FAST Act.  What does that have to do with taxes and your ability to travel?  Everything…

The FAST Act includes a new provision in the Internal Revenue Code (IRC), Section 7345, titled Revocation or Denial of Passport in Case of Certain Tax Delinquencies.  In short, the law says that the State Department can revoke, deny or limit passports for anyone the IRS certifies as having a seriously delinquent tax debt. 

So, what is a “seriously delinquent” tax debt?  The bill defines a seriously delinquent tax debt as one that is unpaid and legally enforceable, in excess of $50,000 (including penalty and interest) and has been assessed along with a Notice of Federal Tax Lien or Notice of Levy.  The $50,000 limit with be adjusted each year for inflation but still is a relatively low number especially considering the inclusion of penalty and interest.  After all, penalty alone can accumulate up to 47.5% and interest compounds daily.

Thankfully, there are exceptions to the rule.  A taxpayer that is subject to an Offer in Compromise, an installment agreement, due process rights or innocent spouse relief will not be affected.  But how the IRS will ensure those that are exempt raises the practical question of how exactly this information will be communicated to the State Department.  The law indicates that the State Department must rely on Treasury for a list of those taxpayers that may be affected by this law.  How often will the IRS send a list?  Will the list include every taxpayer owing over $50,000 or will the IRS set a higher bar, at least initially?  And what about a taxpayer listed by mistake or one that pays the tax debt? The concern then becomes: how quickly can they be removed.

Only time will tell how the IRS chooses to employ this new power.  And there is some question about whether a taxpayer that lands on the list will challenge it in court.  In the meantime, it behooves every taxpayer that could fall into this category to reach an understanding on repayment with the IRS as soon as possible.


The Importance of Compliance

When working with the IRS Collections Division, tax compliance is fundamental to resolving any case.  Compliance in this regard refers to the filing of all outstanding returns and the remittance of required tax deposits for the current period.  This is also known as being “current.” Specifically, a taxpayer who is current can show they are capable of meeting deposit requirements.  Their representative can also argue that they should not be subject to collections and are eligible to be considered for a formal resolution.  In turn, the IRS can make a case that further accruals have stopped and they are no longer a risk to the Service.

Most importantly, compliance is a prerequisite to any case resolution.  When a case is with IRS collections, the taxpayer’s compliance with returns and deposits is subject to higher scrutiny.  The Service simply seeks to draw a line in the sand to stop accruals otherwise known as “pyramiding.” When an individual or business is current and not pyramiding, they are more likely to be protected from collections such as bank levies and garnishments.  They can be protected by being placed into “pending installment agreement status” if a formal proposal is made.  Further, an IRS revenue officer is also more likely to grant a hold on collections and work on a timeline for resolution.  Finally, if an appeal is filed, the Office of Appeals is more likely to consider their case without collections to achieve a resolution.

In its simplest form, the IRS can only formalize a resolution with a taxpayer who is compliant, for the exact periods with balances due.  If returns are outstanding or current deposits are not made, the total balance due is also unknown and terms for an agreement cannot be set. More so, after an agreement has been established, if a taxpayer does not rForm 1040emain compliant, new periods outside of agreement have been created.  This automatically breaks the terms of any agreement and the entire process must start over to encompass all periods with balances due.

For an individual, this means that all personal income tax returns (Forms 1040) must be submitted.  Keep in mind an extension to file a return is not an extension to pay.  Therefore, if a balance is expected on any return on extension, it should be filed at once so it can be included in the resolution.  In addition, if required, sufficient year to date estimated income tax deposits must be made in order to show compliance.

For a business, all payroll tax returns (Forms 941), unemployment returns (Forms 940) and corporate income or partnership returns (Forms 1120 & 1065) must be filed.  Primarily the business must show that in the quarter in which it is currently in, sufficient and timely payroll tax deposits have been made.  If current deposits are late, sufficient payments to cover penalties should be addressed as well.

Very often the IRS is also more likely to formalize a resolution for a taxpayer who is compliant in working with a third party payroll service provider.  Specifically, payroll service providers can help establish a very efficient, formal schedule for deposits and filings under the control of a business owner.  This significantly lowers the risk for accruals, which helps both the taxpayer and IRS in the future.

Overall, cases can easily turn in a taxpayers favor when they first can establish compliance.  Being current must be the primary focus of any individual or business working with IRS collections.  Ultimately, having the experienced representatives at 20/20 Tax Resolution, Inc. will make this process easier and more successful in the long run. Please feel free to contact us with any questions — we are here to help.

[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

Are You Receiving the Proper Notices?

Before the IRS is able to issue a levy against you individually or against your business, it is required to provide you with the proper notices. But how can you be sure that you are receiving all of the correct notices up until this point? The IRS typically starts with a notice telling you there is a balance due on the particular return you filed and then progresses to a “Final Notice of Intent to Levy.” A taxpayer has 30 days from the date of this letter to either fully pay the liability or take some sort of action on the account. Otherwise, the IRS can issue a levy.

Whether you are dealing with the Automated Collection Division of the IRS or local revenue officers, they are for the most part issuing the proper notices before taking any type of action.  However, there is one specific area where notices aren’t always being properly issued.  According to the Treasury Inspector General for Tax Administration (TIGTA) this is happening when there is an additional tax assessment.

When it comes to an additional tax assessment, a completely new notice should go out, giving the taxpayer an additional 30 days before any type of levy action can occur for that particular period. Even if the taxpayer had received the final notice previously and 30 days had run by, once the additional assessment takes place the new notice trumps the old one and the 30 days would start over again. It’s important to point out that the new notice would only be for the particular period in which the additional tax assessment took place. If you owed for multiple periods, the IRS could still levy on the periods that did not receive the additional assessment.

Should the IRS ever issue a levy against you or your business on a period with an additional tax assessment and it either didn’t give you the proper additional notice or didn’t wait the statutory required 30 days, there are steps you can take to fight back and get that levy released. The good news is that the IRS is aware that it isn’t always following procedure when it comes to additional assessments and it is taking the necessary steps to correct the problem. Nevertheless, at the end of the day, it’s always important to know and understand your rights as a taxpayer. We can help.

If you own a business and are facing tax troubles, learn more about IRS levies here. Or, if you are an individual with a tax liability, you can learn more about IRS levies here.




Payroll Tax Problems

If you own a small business, you may have been put in a position where you don’t have enough money to cover your entire gross payroll. Whether it’s because your largest account didn’t pay on time, there was a downturn in the industry or you simply didn’t foresee this cash problem early enough, it is a situation that there’s no easy answer for.

When you’re faced with this situation, what should you do? Go to your employees and ask them to hold your check? If you want to keep your employees, probably not. Get short term financing? Beg, borrow or steal?


Most of the time there is no good answer.  Employees need and deserve to get paid and paid on time.  What happens the majority of the time is that the net payroll is met and withholding taxes go unpaid. Obviously, this is costly.  The IRS will charge a late payment penalty and interest that exacerbate the problem.  When the quarterly 941 tax return becomes due, many people decide against filing it with a balance due for the previous quarter’s liability, generating another penalty for failure to file timely.

All of this snowballs and before you realize it, there is a significant payroll tax problem on your hands.  If you are in this situation, it’s time to act now. Contact us today and find a solution that will end this.

To learn more about business payroll tax problems, click here. 

Should Your Business E-File its Returns?

The most common way for a business to accrue a new liability is, you guessed it, for failing to file a return on time or failing to pay a required Federal Tax Deposit. There are certainly numerous factors that contribute to a business remaining current and compliant, but the easiest one to overcome is to make sure your business is e-filing its tax returns.

Early last month, the IRS reported that e-filings for businesses had increased nearly 9% from the previous year. This increase continued a pattern of growth for e-filings which have steadily risen over the past 10-15 years. While a large percentage of this increase was due to corporations and partnerships electing to e-file their returns, there are benefits to any business, large or small, in filing and submitting its returns electronically.


Filing returns online is the most efficient way for a business to submit it returns. E-filed returns are processed more quickly than paper filed returns and allow the filer to receive a proof of receipt immediately upon filing. This service is available 24 hours a day, 7 days, and also has the option to set up a direct debit for returns which require a payment – such as 941 Withholding Tax Returns. It is also safer than mailing in returns as there is not the possibility of a return being lost in the mail. Lastly, e-filing lead to fewer errors on returns as the software for the website has a feature designed specifically to catch any mistakes or miscalculations.*Corporations and partnerships can get more information about IRS e-file at IRS.gov

Accessible tools such as these ultimately aid businesses in staying current and compliant with their filing obligations with the IRS. Being current and compliant means that all returns must be filed on time and all Federal tax deposits must be made on time and in full. In turn, this can save businesses money by avoiding the costly penalties for filing a return late or incorrectly. Staying current and compliant is a necessity when negotiating a resolution for any outstanding tax liability. Before the IRS will consider your proposal for resolution, you much show that your business is current and compliant with its filing obligations. This is also extremely important after a resolution has been reached. If, for example, a business has entered into an Installment Agreement, it must not accrue any new tax liability otherwise it risk defaulting that agreement.

Need some expert advice? Give us a call today or simply fill out our contact form and we will be in touch with your shortly.


The Nuts and Bolts of IRS Appeals

There are two types of administrative appeals that can be filed within the IRS: the Collection Due Process Request (CDP) and the Collection Appeal Process Request (CAP).  Each is limited to specific issues that can be appealed, and each has its own scope of review.  A brief overview of each type of Appeal follows.

The Collection Due Process Request can be filed in one of two instances: when the IRS has issued a Notice of Filing of Federal Tax Lien or when it issues a Final Notice of Intent to Levy.

Generally speaking, the Notice of Filing of Federal Tax Lien does not warrant a Collection Due Process Request.  First, there must be a showing of extreme financial hardship due to the li
en filing.  While all lien filings can affect credit, loans or contracts, this is not sufficienStacked Paperst for success at Appeals.  Extraordinary and direct financial detriment must be shown.  Second, the right to appeal arises only after the lien is filed.  There are no pre-lien appeal rights.

A Collection Due Process Request based on a Final Notice of Intent to Levy, however, is used fairly frequently.  For one thing, if timely filed (within 30 days of the date of the Notice), it halts any and all IRS enforcement action for those periods listed in the Notice.  In fact, unless there are “pyramiding liabilities” for a business, it will halt enforcement action on all periods of liability, even those not included in the Notice.

For a taxpayer that needs time to gain compliance, the essential requirement for any resolution, a Collection Due Process or Equivalent Hearing Request can provide that time.  Most Collection Due Process or Equivalent Hearing Requests will take about six to eight months to be assigned and scheduled.  And at the Hearing, if the taxpayer has gained compliance, the case often can be resolved through an Installment Agreement.

A Collection Appeal Process Request can be filed when there is a levy or threat of levy (even verbal), when the IRS is seeking to default an Installment Agreement, or when the IRS rejects an Installment Agreement proposal that has been under review.  This Appeal also must be filed within 30 days of the IRS action at issue.  And, especially when a levy is at issue, Collection Appeal Process Request hearings tend to be held relatively quickly, sometimes within a few days of filing.

While a Collection Due Process Request can address substantive issues, such as whether an Installment Agreement is an appropriate alternative to levy, the scope of a Collection Appeal Process Request is limited to a review of whether the IRS followed procedure in taking the relevant action.  Nevertheless, if financial hardship can be demonstrated, it can be a very effective tool in preventing a threatened levy or releasing a levy already in place.

If you are looking for tax relief, learn more about the various ways in which we can help resolve your tax liability. 


Appeals on Penalty Abatement Requests

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If at first you don’t succeed… A taxpayer that is seeking an abatement on penalties will initially have to make the request through the Collections Division or other functions within the IRS.  When unsuccessful at this level, it would be wise to escalate the request to the IRS Appeals Division. Appeals is independent from the Collections Division and is tasked with resolving disputes on a fair and impartial basis without litigation.

The Treasury Inspector General for Tax Administration (TIGTA) recently conducted an audit to evaluate whether penalties assessed against taxpayers were fully or partially abated in accordance with Appeals criteria.  On July 30, 2015 TIGTA issued a statement on its findings, noting that Appeals has the authority to abate certain penalties when the abatement request has been denied by another function within the IRS.  Furthermore, the statement pointed out that in Fiscal Year 2013, Appeals abated approximately $127 million in penalties.

Generally, the audit found that in most cases, Appeals properly accepted cases in which the IRS operating division had previously denied the taxpayer’s request for abatement.  There were, however, a number of penalty appeals cases that were not abated in accordance with Appeals criteria.  TIGTA noted that in some cases, they could not determine the justification that Appeals personnel used in granting the penalty abatement. Additionally, the Treasury also determined that a small number of processing errors and control weaknesses might have affected the outcome of penalty abatement decisions at the Appeals level.

While the audit went on to conclude that additional training was necessary for Appeals Technical Employees on the requirements for justifying, documenting and granting abatement on penalties, it nonetheless illustrated the point that Appeals is an effective venue for a second chance at abatement of penalties.

We understand that appeals can play an important role in obtaining a desirable resolution. Click here to learn more about how we assist you with your unique situation.