Category Archives: Individual Taxes

IRS Turning to Private Tax Debt Collectors

Beginning in the spring of 2017, the IRS is going to take yet another run at using private debt collectors to go after its inactive tax liabilities. This is the third go around for the IRS using private debt collectors—the first two efforts, one in 1996 and the other from 2006-2009, were abandoned due to concerns over their cost-effectiveness and how the private collectors conducted themselves. Despite those failures, in December of 2015 Congress passed the Fixing America’s Surface Transportation Act (FAST Act), which included a provision that the IRS is required to use private collection agencies for the collection of outstanding inactive tax receivables.

Most recently, the IRS announced the four contractors that will be charged with the task of implementing the program across the country. They are as follows:

  • Conserve Fairport, New York
  • Pioneer Horseheads, New York
  • Performant Livermore, California
  • CBE Group Cedar Falls, Iowa

In this announcement, the IRS has offered clarity on the accounts being assigned to these collection agencies. The agencies will work on accounts where taxpayers owe money, but the IRS is no longer actively working their accounts. Several factors contribute to the IRS assigning these accounts including older, overdue tax accounts or lack of resources preventing the IRS from working the cases. The IRS has also clarified that it will not assign accounts to private collection agencies involving taxpayers who are:

  • Deceased
  • Under the age of 18
  • In designated combat zones
  • Victims of tax-related identity theft
  • Currently under examination, litigation, criminal investigation or levy
  • Subject to pending or active offers in compromise
  • Subject to an installment agreement
  • Subject to a right of appeal
  • Classified as innocent spouse cases
  • In presidentially declared disaster areas and requesting relief from collection

In disclosing the selection of its collection contractors, the IRS offered only a few more details on the ways in which these companies will interact with taxpayers and their representatives. According to the release, the IRS will give each taxpayer and their representative written notice that their account is being transferred to a private collection agency. The agency will then send a second, separate letter to the taxpayer and their representative confirming the transfer. The IRS also offered an assurance that as a condition of the contract the agencies must respect taxpayer rights, including abiding by the consumer protection provisions of the Fair Debt Collection Practices Act.

Despite well founded concerns with taxpayer rights and privacy as well as the ongoing flood of IRS-related phone scams, implementation of the law probably couldn’t come at a tougher time. The IRS indicates that it, “will do everything it can to help taxpayers avoid confusion and understand their rights and tax responsibilities.” Seemingly, in direct response to a ploy of the scams, the IRS has said that the private collection agencies will not ask for payment on a prepaid debit card and that all payments should be payable to the U.S. Treasury and sent directly to IRS.

The hope is that prior to implementation, the IRS will offer even more details about how these companies plan to conduct themselves. Any complaints or issues with the private debt collectors should be reported by calling the Treasury Inspector General for Tax Administration (TIGTA) hotline at 800-366-4484 or by visiting www.tigta.gov.

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.

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.

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.

“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.

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.

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.

 

 

 

Dilemma Posed by Tax Extenders

Every year tax professionals around the country hold their proverbial breath waiting for Congress to take action on the tax code.  And almost as sure as the sun coming up, Congress avoids permanent tax policy discussions by agreeing on and passing a series of tax extenders.  Tax extenders are the common term for what are a set of temporary corporate and individual tax breaks. The extenders are usually passed with the goal of assisting taxpayers and stimulating the economy.

The dilemma posed by tax extenders often centers on tax planning. With most extenders lasting one or two year, consistent and proactive tax planning advice can be difficult to give. For example, quite a few of the current extenders up for debate expired in 2013 but were reinstated for 2014 in December of 2014 (Russell, Accounting Today). The idea that that if a tax law goes into effect two weeks before the end of the year should be inconceivabBlank Notebookle. And yet, Congress puts American through it almost every year.

As is stands, tax professionals have no choice but to offer planning advice on what Congress will “probably” do based on past years of doing the same.  Is that good planning or educated guessing?

Perhaps you have a client who could use our assistance, or have questions that we can help you answer. Click here to get in touch with one of tax experts, today.