Category Archives: Business Taxes

Credit Bureaus to Lessen Impact of Federal Tax Liens

For many years, there has been one thing that taxpayers can count on when taxes are owed to the Internal Revenue Service (IRS): A Notice of Federal Tax Lien (NFTL) being filed. While the NFTL is primarily used by the IRS to secure its liability against a taxpayer’s right, title and interest in property it has also become a rather harsh reflection of one’s credit worthiness, something many consumer advocates have strong opposition to.

With that said, big changes may be on the horizon for taxpayers that owe the IRS unpaid taxes. Recent reports indicate that the credit industry is on the verge of adopting new rules that could minimize—or do away with altogether—the negative impact tax liens have on credit scores. This is a noteworthy departure from current procedure in which tax liens cost taxpayers significant credit points.

On July 12, 2016, according to a post on Credit.com, as part of its National Consumer Assistance Plan (the result of a settlement brokered with 31 state attorneys general back in 2015), Equifax, Experian and TransUnion are planning to significantly reduce the amount of tax-lien and civil-judgment information found in consumer credit files. Details have yet to be finalized, but “there will be less of that type of data in credit reports moving forward,” according to Stuart K. Pratt, president and CEO of the Consumer Data Industry Association, a trade association that represents the credit bureaus, confirmed to Credit.com. Testing is currently underway and a final plan regarding the information is expected to be implemented in July 2017.

 

If we rewind back to 2011, the IRS announced its own attempt at mitigating some of the negative impacts of NFTLs through the Fresh Start Initiative. According to an IRS press release at the time, “The goal is to help individuals and small businesses meet their tax obligations, without adding unnecessary burden to taxpayers. Specifically, the IRS is announcing new policies and programs to help taxpayers pay back taxes and avoid tax liens.” The changes to lien protocol did not, of course, change the way that a lien would be scored in by the credit reporting process. Instead, the Fresh Start Initiative was a collection of procedural changes that provided more alternatives to the traditional lien process.

Interestingly, studies show that the filing of an NFTL by the IRS actually assists in the collection of tax dollars. And yet despite this factual evidence, the IRS has chosen a course of action that yields far fewer notices of liens than any time in the past decade. Still, the proposed changes by the credit bureaus must give the IRS pause for additional thought into the subject. At this point, only time will tell exactly how the rules are changed within the credit industry and we should get a better idea towards the end of this year and in to 2017—observers will want to continue to pay attention to the IRS’ response. It’s only been five years since the IRS’ Fresh Strat Initiative lien changes and there are no significant IRS budget increases on the horizon. It seems unlikely that any major shifts will occur within the IRS as a result of the credit bureaus changing their rules.

20/20 to Provide Expertise at 2016 NAEA Conference

David Miles, EA, vice president of 20/20 Tax Resolution, will present two National Tax Practice Institute® (NTPI™) courses at this year’s annual conference of the National Association of Enrolled Agents in Las Vegas Aug. 1-3.

The highest credential awarded by the Internal Revenue Service, an enrolled agent (EA) is a federally authorized tax practitioner empowered by the U.S. Department of the Treasury to represent taxpayers before the IRS. Miles will be leading two courses, including:

  • Introduction to Collections – Monday, Aug. 1 This introductory course to IRS Collections explores the fundamentals of the IRS collection system, as well as the skill set needed by those practitioners just beginning to represent clients before Collections.
  • Case Evolution with a Flowchart Approach – Wednesday, Aug. 3 This session covers the process for handling a collection case from start to resolution through the aid of a specific workflow.

“At 20/20, we’re very proud that every one of our tax professionals serving clients nationwide are credentialed enrolled agents or attorneys – and many of our agents hold both of these titles,” said Brian Biffle, president of 20/20 Tax Resolution. “Constant change is the nature of the tax business, and David’s expertise will help NAEA attendees refine and enhance the skills they take back to their clients.”

NTPI is a three-level program developed to sharpen the skills of enrolled agents at all stages of their careers. With each level of this program, participants expand their knowledge and skills, and gain the confidence needed to guide their clients successfully through the challenging maze tax regulations and agency structure.

How Long Before the IRS Catches On?

While the IRS will initiate the process of collections almost immediately after a tax return with a balance is filed, its level of aggression varies widely from case to case.  Yet, the IRS has a ten-year statute of limitations to collect any federal tax debt.  This statute of limitations begins from when the tax is assessed and can be extended due to additional tax assessments or bankruptcy or other legal action.  Additionally, the IRS has three years to audit any given tax return.  However, if the IRS deems a return fraudulent there is no such statute of limitations for audit or collections, effectively the statute of limitations becomes infinite.  Again, not all cases are viewed equally within the eyes of the IRS.  Businesses are typically on a much shorter leash than are individuals.

The IRS will begin the process of collections with a simple, “Notice and Demand” for payment letter.  These letters are typically issued about 30 days after a delinquent tax return has been filed. If the IRS receives no response to its initial request for payment within the timeframe allotted in the letter, it will proceed with increasingly aggressive correspondence. After the timeframe to respond has elapsed the IRS will issue a CP504 notice, “Intent to Seize Property or Rights to Property.”  This is the IRS’s preliminary threat to enforce collections of a debt.  If it again receives no response, it will elevate its aggression and file a federal lien and/or provide a “Final Notice of Intent to Levy.”  After a Final Notice of Intent to Levy has been issued a taxpayer has 30 days to respond before the IRS can legally take this action.  After 30 days has elapsed and the taxpayer has not taken corrective action or requested an appeals hearing, the IRS can levy at any time.  This entire process can take as little as three months, but can take much longer. 

For individual taxpayers, most of these notices will be computer-generated and most cases that are below $250,000 in total tax debt will remain with the IRS’s Automated Collections Department (ACS).  This means to speak with any IRS personnel a taxpayer will need to contact ACS at their toll-free line and bear through long hold times to discuss case specific options for resolution with IRS representatives standing by in a call center.  The IRS typically will not contact an individual taxpayer directly or by phone unless they are flagged for audit or the liability exceeds the $250,000 benchmark.  There are certainly exceptions to this for prolonged periods of delinquency or for “pyramiding” taxpayers.

For most businesses and particularly with regard to employment tax, the IRS will elevate the level of collections much more rapidly.  Any employment tax liability that exceeds $25,000 will require a field agent to be assigned for resolution of the account.  Employment taxes are considered to be held in a trust by the employer and are used to pay employee’s income tax as well as funding both Social Security and Medicare. Because of this, the IRS pursues this tax type much more aggressively than other tax types.  Due to tremendous shortfalls in financing for these entitlement programs, the IRS is ever increasing its effort to connect with business owners who fall short on their employment tax obligations as quickly as possible.

Justice Department Gets More Aggressive

Employment tax fraud has for many years been an issue of vital importance to both the Department of Justice and the Internal Revenue Service (IRS). Employers have the obligation to withhold and turn over taxes belonging to individuals—if they fail to comply with this responsibility, our system of relying on voluntary compliance can erode. Additionally, because the IRS does not pursue individuals for the non-payment of their withheld taxes, the loss to the government is exacerbated. Not only are the funds not collected from the employer, but the employee is actually given credit for taxes paid.

How exactly does this play out? While each situation may differ due to various circumstances, for the purposes of this discussion let’s think of it this way:

Imagine a company has in employee who is paid every two weeks. However, when pay day comes the employee doesn’t receive the full amount.  Instead, he/she is paid less, sometimes much less, because the employer is charged with making certain necessary deductions such as income tax (federal and state), social security and Medicare.

On top of that, the employer has the obligation to ensure that the withheld funds get to the IRS by making what is called a federal tax deposit. However, let’s pretend that in this particular situation, the employer does not send the funds to the IRS. At this point, a tax liability is created in the employer’s name and penalties and interest begin to accrue. The employee, however, still receives credit for the taxes that were withheld from his/her paycheck.

Fast forward to the end of the year. Now, the employee has a tax due based on income earned and deductions as we all do. The amount due is usually paid in advance by the withheld taxes even though in this particular example the funds aren’t actually paid in by the employer.

Recently, this issue has started to receive even more attention. In fact, the Wall Street Journal published an article discussing the Department of Justice’s intent to get tougher on employment tax fraud—which can include withholding by not paying over employment taxes (article link). This piece provides insight from the head of the Justice Department’s tax division, Caroline Ciaolo, “Employers across the country need a loud and clear message that this is not just a civil violation—that the willful failure to comply with the employment-tax laws is a crime and that we’re going to hold folks accountable.” 

Despite the aggressive tone of Ms. Ciarolo’s statement and the Department of Justice string of victories against companies accused of employment tax fraud nothing has seemingly changed from a funding perspective to allow a new initiative. The question looms: has the Department of Justice realigned priorities and resources to target employment tax cases over other cases or is the publicity surrounding the recent verdicts an opportunity for the Department to send a larger message?

While no one has a crystal ball, at this point rather than focusing on the answer to this particular question, it is probably better to focus on resolving an employment tax issue before it gets the Department of Justice’s attention.  For those of you facing this type of tax problem, we strongly urge to you contact us today.  There is no reason for you to wait around to see what could happen given the current landscape.

 

Success Story: 20/20 Assists SMB Owner in New Jersey

Back in April of 2013, a small business (SMB) owner from Hackettstown, New Jersey, approached 20/20 Tax Resolution for help in resolving a $60,000 liability with the IRS. We worked over the next several months to obtain the appropriate documentation and analyze the taxpayer’s current financial condition. Because of the precarious situation the business was in when they came on board, we also filed several appeals on behalf of the business so as to keep them safe from enforcement actions (levies on bank accounts, seizure of assets, etc.), while we took the time to analyze their situation.

In July of 2013, we submitted a proposal for an Installment Agreement in the amount of $300 per month to resolve the liability through what’s called a Partial Payment Installment Agreement. Although we knew that this agreement would need to be reviewed every two years, the taxpayer could not afford a larger monthly payment to meet the six-year rule so as to avoid the two-year review. After submission of our proposal, there was the normal back-and-forth of negotiations and collection of additional supporting documentation as well as awaiting the appeals process for the previously filed appeals.

During this time, we also had to deal with a Revenue Officer who was not playing by the rules and issuing erroneous levies. We were successful at getting these levies released based on the rules and regulations set forth in the Internal Revenue Manual (IRM), but all of these issues lead to a delay in obtaining a formal resolution.

By April of 2014, the business’ financial condition was only worsening. Things were even more dire than they were a year prior. This being the case, we decided to move forward with an Offer in Compromise on behalf of the business. The taxpayer was skeptical at first that we could work out an agreement of this type, but we discussed with him the new rules and regulations surrounding the Offer in Compromise based on the Fresh Start Program and showed him why his business qualified for the program. By October 2014, we completed the Offer in Compromise and sent it to the taxpayer for signature and to forward with the appropriate down payment and filing fee. Unfortunately, the taxpayer forgot to send in the Offer, delaying our efforts a bit longer. By February of 2015, the Offer was submitted and we were then tasked with awaiting an Offer Specialist to be assigned to the case. The Offer process is quite lengthy and can take up to two years before a formal determination is made on the case. After negotiations back and forth, we were finally successful at resolving this case through the Offer in Compromise program, compromising the liability for a total of $324 in February of 2016.

We were all very pleased with the final results and received this “thank you” from the taxpayer:

I wanted to write to you to say thank you for all the work that you did for me to help me resolve this tax issue. As you may remember, we had previously used another company, which charged us huge fees and did not advance the process of settling the debt. That company went bankrupt. I had mistakenly turned over all my documentation to that company. I lost all of it. That was an enormous error on my part. I trusted the wrong people. I also lost all my records, which made your job even more difficult. I, not only, lost my money to that company, I also found that the tax issues worsened. I was quite “gun-shy” when I hired your company. However, you were very patient with me throughout the process. I thank you so much for that. When you laid out my options, I could not have imagined that this would have been settled so fully and completely. It is like a breath of fresh air. So, I just wanted to thank you so much for your professionalism, diligence, and patience.”

As you can see, not all cases are cut and dry, and the IRS can be an extremely difficult entity to deal with. This being said, with proper representation, and maybe a little bit of patience, your case could be resolved just as completely as this one was. Get in touch with us today to learn more about how we can help with your particular situation.

IRS Collection Cases: Top 5 Myths

It’s that time of year.  Taxpayers across the country are preparing returns only to learn that they owe taxes they cannot pay.  What’s the consequence of owing the Internal Revenue Service (IRS) unpaid taxes?  That’s a question that is difficult to answer since every case depends on the facts and circumstances of the specific situation.  However, what owing taxes does mean is that the taxpayer is likely to encounter the IRS Collection Division.

The Collection Division is responsible for collecting taxes that have not already been paid or placed on a voluntary resolution program.  Unfortunately, there is quite a bit of misinformation regarding cases assigned for collection by the IRS.  Regardless of your circumstances here are a few of the most common myths of IRS collection cases:

  1. You’re not responsible for mail you never get: Many taxpayers believe, mistakenly, that if they don’t let the IRS know their most current address they are not responsible for collection letters the IRS is sending.  Nothing could be further from the truth.  Generally, the IRS’ requirement for service by mail is the taxpayer’s last known address.  Therefore, if the taxpayer has not notified the IRS of an address change the taxpayer will actually be the one to suffer by being in the dark.  This issue can end up costing a taxpayer valuable collection appeal rights.
  2. The IRS will settle for “pennies on the dollar”: The IRS does have a settlement program called the Offer in Compromise (OIC). Interestingly, offers happen probably more often than many tax professionals think, but a lot less than taxpayers have come to believe. The IRS’ own numbers over the past two years show an Offer in Compromise acceptance rate of roughly 40%.  Still, the key to a successful offer is the pre-qualification process.  There are many nuances to an Offer in Compromise case and as a result, there is no substitute for experience when it comes to presenting a viable, realistic offer. 
  3. The IRS can collect against you for a lifetime: Sometimes dealing with IRS Collections for more than a day can feel like a lifetime.  Especially, if you’re on hold.  In fact, the rules concerning how long the IRS can pursue unpaid taxes are quite clear.  Generally speaking the IRS’ statute of limitations for collection is ten years from the date a liability is assessed.
  4. The IRS will take your home: In actuality, the IRS is not going to take your home.  That’s not to say that the IRS can’t take it… only that the IRS doesn’t do it.  Seizures (which can include home, car, boat, etc.) themselves are fairly rare for the IRS.  In the past two fiscal years, the IRS has reported fewer than 500 total seizures.  And because policy statement and stricter rules make seizing a primary residence more difficult it becomes increasingly difficult to face that proposition.
  5. At least the IRS can’t get to your retirement accounts: Unfortunately, the IRS can get to retirement accounts.  There are very few assets exempt from the reach of an IRS levy.  They are outlined specifically in the Internal Revenue Code and include (here), but are not limited to, Workmen’s Compensation, Unemployment Benefits and minimum exemptions for salaries and wages.  What one won’t find exempted by rule are 401k accounts, stock accounts or Social Security benefits.

Of course, dealing with IRS Collections is a nuanced process that should not be taken for granted.  But, dispelling the myths above should help bring more clarity to what one may face when dealing with IRS Collections.

[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. 

What You Need to Know About Penalties & Interest

More often than not, clients come through the door and want to know one thing: how much can be removed from their total tax bill. While penalty abatements are available, I always caution my clients to focus on the more important matter first, which is obtaining a formal resolution to the tax debt. Although penalty abatement can grant some penalty relief if reasonable cause can be established, it is not always wise to request it until the client has paid the tax in full or established a resolution such as in Installment Agreement. In fact, if neither has been done, the taxing authorities will rarely grant penalty abatement.

A lesser known fact when it comes to interest is that Congress, not the IRS, sets the rates (currently 3%). And under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. Interest is probably not going to be waived, but there is an exception if penalties are abated. In such cases, interest on the penalty will be adjusted so that the interest on the penalty amount is removed. However, the interest on the tax itself is a necessary evil and typically cannot be removed.

When it comes to penalties assessed by the IRS, the most common are failure to file, failure to pay, federal tax deposit penalty, estimated tax penalty, and the Trust Fund Recovery Penalty (TFRP). To call the TFRP a penalty is a bit of a misnomer, since it is actually the principal tax amount that a business withheld from employees’ paychecks, and then failed to pay over to the IRS. It is a portion of the related business liability, so if a business is paying its liability through an Installment Agreement, those payments are applied to the TFRP as well. But, remember that establishing a resolution for the business collection case does not automatically resolve the TFRP case against the individual(s). The individual cases must be addressed and resolved separately. 

The IRS will abate or remove penalties if you establish reasonable cause. This is generally granted when the taxpayer proves that he or she exercised ordinary business care and prudence in determining his or her tax obligations but nevertheless failed to comply with those obligations. A showing of reasonable cause typically requires evidence that the taxpayer acted in good faith, and that the failure to comply was not due to willful neglect. Absent first-hand knowledge of what led to the tax accrual, a good starting point for a penalty abatement, is asking the taxpayer to describe in his or her own words what happened. This should provide enough insight for the tax professional to further investigate and eventually expound upon key relevant points. It’s always best to focus on the facts and timelines that overlap with the time of the accrual, thereby providing the best chance of success. 

Some of the specific reasons listed in the IRS penalty handbook that may establish reasonable cause are as follows:

  • Death, serious illness, or unavoidable absence of the taxpayer or in the taxpayer’s immediate family
  • Fire, casualty, disaster or other disturbance
  • Unable to obtain records
  • Erroneous advice or reliance

*The above list is not exhaustive, and other reasons may qualify for penalty relief. It is important to provide as much detail as possible, and any written documentation available, to have the best chance to obtain relief.

If penalties have been assessed against you or your business, you can minimize the damage by remaining current on all tax obligations moving forward, establishing a formal resolution to the back tax liabilities, and formally requesting abatement of all assessed penalties. In the meantime, if you are unsure about your liability, we encourage you to utilize our online calculator tool (click here) that will allow you to calculate the penalty and interest on your tax liability, today.

Payroll: What You Don’t Know Can Hurt You

I regularly speak to the collection system or process that underlies IRS and state collections. A common theme that is promoted in our collection representation education courses is to try and control as much of the collection process as possible. There is nothing more powerful to one’s role in the collection process than knowledge and communication.

These key components of dealing with the IRS are true for individuals and businesses alike. And yet, when we talk about knowledge and communication we are so often referencing areas of improvement for business owners. Small to medium-sized business (SMB) owners are typically inundated with responsibilities. Not only are the company’s employees looking to owners for their livelihood, but many are still directly involved in the company’s production, its product.

Take these burdens and couple them with an IRS system that sends an extraordinary volume of mail to report on even the slightest detail (a change in reconciling small dollars on a return) and certain problem patterns develop. There are two very common scenarios that lead to the owner getting behind and thus losing control of the collection process very early on:

  1. Not opening IRS mail
  2. Empowering someone other than themselves to control the payroll process

The IRS is infamous for its mountains of mail. Taxpayers know it, tax professionals know it and the IRS knows it.  For the IRS, it’s a crucial and relatively cost effective way to fulfill certain statutory obligations such as the need to keep taxpayers notified. And while it works there can also be a point of diminishing returns. It is not at all uncommon for the volume of mail to lead to the feeling that the letters never have any substantive material. This fosters an almost apathetic approach to the next letter that leads to missing key pieces of information such as notification of ability or an appeal.

That same feeling of apathy can develop in relationships within a business. Sometimes it’s not a lack of interest that creates the problem but rather putting too much unchecked trust in someone responsible for something as important for payroll. In any business, the owner carries the ultimate responsibility for ensuring that payroll tax obligations are met and met timely.  Although someone can be hired for a specific skill like accounting, a business owner cannot delegate responsibility for employment taxes. There is no way to move that burden. A business owner will always be in a position to know where their company stands with its payroll tax obligations if this is clearly understood. 

I recommend to my clients nothing short of weekly meetings, even if they are quick, to review the critical functions of their company. With many small businesses, there are going to be some issues. Knowing about the problems so they can be addressed is vital to getting back on top. Let us be of assistance when it comes to answering any of your questions by

Let us be of assistance when it comes to answering any of your questions by contacting us now, we are always here to help. You can also learn more about payroll tax issues, here.

Business Owner? Pitfalls of Not Paying Attention

Business owners wear many different hats and often times work long hours to ensure that they provide quality products and services for their clientele. Over the years, I have worked with many business owners that take considerable pride in their given trade. Whether I am working with an electrician, hair stylist, physician or daycare owner, there exists a certain level of experience and passion, a calling if you will, that leads one to start their own business. While applying a skill set in a particular trade is undoubtedly a vital aspect of running a successful business, the role of the business owner does not stop there.

Many small business (SMB) owners are forced to delegate duties and responsibilities to others as there are simply not enough hours in any given day to “do it all.” Delegation frees up more time to focus on strategic hands-on work, instead of worrying about small details. While effective, business owners must be cautious when delegating responsibilities relative to tax issues. It is not uncommon for a business owner to rely on a CPA to prepare tax returns, or a bookkeeper or payroll service to handle income statements and payroll tax deposits. Ultimately, however, a business owner must maintain accountability despite the fact that someone else is “handling” the taxes.   

The issue of accountability becomes paramount when dealing with tax liabilities in general, but particularly when that liability stems from unpaid withholding taxes. While it is clear that the IRS will attempt to collect unpaid withholding taxes from a business, many owners are surprised to learn that the IRS can also make assessments against willful and responsible parties under the provisions covering the Trust Fund Recovery Penalty. Regardless of whether or not a business owner is delegating the federal tax deposit responsibilities to others, in most cases the IRS will still find the owner responsible on a personal level.

Anyone that has dealt with IRS Collections has probably received numerous letters and notices regarding their liability. In fact, I would go so far as to say that IRS Collections can inundate taxpayers with notices over time. While no one wants to receive a letter from the IRS, it is imperative that business owners pay attention to each notice.  Often times these notices will include requests for a response or additional information, and may contain important deadlines. Failure to respond to a notice could result in audit, additional tax, interest and penalty assessment, or levies, garnishments and possibly seizure.

When it comes to tax issues, business owners must take an active role in reviewing tax returns, federal tax deposits, and notices on a consistent and on-going basis. Paying attention to the details may make the difference between working out a reasonable resolution or facing an insurmountable obstacle. When in doubt, it is essential to seek professional help. Contact us today, and we can help to answer any questions while simultaneously getting you and your business back on track.