Category Archives: Tax News

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.

 

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.

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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.

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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.

Seizure and Sale Procedures Can Be Improved

For those with any experience dealing with the Internal Revenue Service, it may come as no surprise that the entity has some room for improvement.  According to a report recently released by the Treasury Inspector General for Tax Administration (TIGTA), the IRS needs to improve its compliance with procedures for conducting sales of property seized for unpaid taxes.

To break it down, TIGTA recommended that the IRS do the following to improve its seizure and sale procedures:

  • Mandate that Property Appraisal and Liquidation Specialists (PALS) consistently prepare a detailed sale plan once they accept custody of the seized property
  • Document the return of all personal items from seized vehicles; and
  • Require the PALS to follow Internal Revenue Manual (IRM) requirements for conducting a sale adjournment and recalculating the minimum bid, and ensure that any adjustments are supported by the facts of the situation and properly documented.

In response to the report, IRS officials did agree with most of the recommendations; however, disagreed with two recommendations to add IRM guidance for:

  • Indirect expenses of seizure sales that can be charged to the taxpayer and
  • Return of license plates from seized vehicles that are sold. TIGTA maintains that the appropriate IRM sections should be updated to provide clear guidance for IRS employees and managers to follow.

It is safe to say that the IRS, in performing its duties, does not always seem to place a high priority on protecting taxpayer rights or advising taxpayers of the different rights and remedies available to them under the law. There are provisions in place to help ensure that taxpayers are properly advised and taxpayer rights are honored. Yet, given the opposing interests of the parties and the overarching function of the IRS to collect revenue, these taxpayer protections sometimes seem to be treated as a mere formality in practice.  This illustrates why it is important and valuable to have an experienced representative working on your behalf to advocate for and protect your best interests at all times while resolving your outstanding tax liabilities.

We understand that the world of tax resolution can be confusing, click here if you’d like to connect with a tax expert today to discuss your situation in more detail.  If you are a tax professional, take a look at some of these useful resources, we hope you find them to be helpful.

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.

IRS Trying to Make Good on Preventing Unpaid Employment Taxes

Federal Tax Deposit Alerts (FTD Alerts) bring to light an employer’s declining payroll tax deposits.  The goal of the alert was to have the IRS meet with employers, determine the cause of the declining deposits and ensure that the employer maintains compliance.  As the IRS budget suffered year after year since 2010, so did the effectiveness of the FTD alert system.  The system has relied almost entirely on a mail campaign, but that is about to change.

The IRS recently announced that as a part of its Early Interaction Initiative, Collections “work plans have been adjusted to allow field officials to work more FTD alerts more quickly.”   As a result, “The number of cases assigned to Field Collection will increase under the Early Interaction Initiative.”  Business taxpayers, especially those with preexisting liabilities should be expecting more surprise knocks from IRS Collections this year.  For years, the IRS has employed FTD alerts as a tool to combat accruing employment taxes.

Despite the fledgling FTD Alert program over the past several years, the IRS has been consistent in one message concerning employment tax and that is, “Applying the tax laws with fairness for all requires that the IRS address payroll tax delinquencies as soon as possible.”  In light of the IRS’ budget woes, it’s natural to question the sustainability of this plan as well as Collections core functions.  Yet, the IRS’ announcement appears to signal that the IRS has a plan in place and is serious about making this work.

It is now more important than ever to get in front of your tax issue sooner rather than later.  The last thing you want is to be caught off guard when the IRS comes knocking on your door.  Fighting on behalf of taxpayers just like you is what we do every day – make it a point to get in touch with one of our tax experts so that we can begin to evaluate your case, today.

If you’d like to read the IRS announcement in full detail, click here.

20/20 Attends the 2015 Nationwide IRS Tax Forum

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

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

What are the 2014 Tax Changes?

Every year bring changes in tax laws, keeping millions of taxpayers on their toes, and 2014 is no exception. Before you get ready to file next April, it is important to make note of some key changes in these laws.

First, and foremost, tax rates have changed and caps have been raised for all but the wealthiest individuals. This means that unless your salary increases significantly in 2014, you could pay less in taxes this year.  The exception is for individuals with an income over $400,000 ($450,000 for couples filing jointly), where the tax rate has increased to 39.6%.

Other changes include a Medicare surtax for taxpayers making over $200,000 per year ($250,000 for married couples filing jointly), limitations for itemized deductions, and phase outs for personal exemptions.

Taxpayers will also be affected by the Affordable Care Act. Specifically for those taxpayers that do not have health insurance in 2014, and who do not meet certain exceptions, there will be a monthly “shared responsibility payment,” otherwise called a penalty. The penalty is the greater 1% of taxable income, or a flat fee of $95 per uninsured adult, and $47.50 per uninsured child, with a maximum of $285 per family.

Additionally, the IRS has increased the threshold for deductions for medical expenses. The percentage has increased from 7.5% of adjusted gross income to 10% of adjusted gross income.  Meaning, for someone with an adjusted gross income of $50,000, he or she must now have medical expenses exceeding $5,000 to receive the benefit of the deduction. Last year, the threshold was $3,750.

And, in 2014 the IRS will officially recognize all couples legally married under state law. In fact, the IRS will recognize same sex couples regardless of where the couple currently lives.

Don’t Be Penalized for Foreign Bank Accounts

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

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

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

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

Time to File 2013 Tax Return

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

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

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

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