Category Archives: Tax News

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.

Could the IRS pass Tax Debt to Collection Agencies?

Only a few years after the IRS made a decision to stop using private collection companies for collection of outstanding federal taxes, this topic  was raised again by the Chairman of Senate Finance Committee Ron Wyden in his Expiring Provisions Improvement Reform Act. This extenders bill, if approved, will force the IRS to delegate some of the tax collection actions to the private debt collectors, a practice that, according to the IRS, already failed twice since 1996.

The requested modification obligates the IRS to involve private companies in collection of taxes from those taxpayers whose accounts have been placed into inactive status for one of the following reasons: the IRS failed to find the taxpayer, did not have enough resources to proceed with collection, or simply did not contact the taxpayer for a year after a delinquent account was assigned to the IRS collections.

Although this measure seems to be an attempt to help the IRS to retrieve the debt and to free up a large number of the IRS employees who can then become available for other tasks, the IRS officials believe that implementing this strategy will be more harmful than beneficial. The president of the National Treasury Employees Union, Colleen M. Kelly, stated that Congress should not force the IRS to use this option because it already cost the US government millions of dollars in a past. Nina Olson, National Taxpayer Advocate, agreed with Kelly, in her 2013 Report to Congress, and emphasized the fact that the IRS agents collect 62 percent more in taxes than private collection agencies.

Obamacare – The New Tax Penalty

The IRS has plenty of penalties it can impose for late filing, late payment, interest, and much more. Starting on the 2014 tax returns there’s a new penalty the IRS can impose based on the Patient Protection and Affordable Care Act, commonly known as Obamacare.

With a few exceptions, everybody is expected to have minimal qualifying health insurance in place by April 1st 2014. It doesn’t matter how you obtain the insurance; you may already have it through your work, Medicare, or Medicaid. For some people, subsidies are available through their state’s health insurance marketplace (also called the exchange).

If you don’t have health insurance in place, you will have to pay a fee on your Federal income taxes for every month you’re without coverage. For 2014, this fee is $95 per adult (half for a child) up to a maximum of $285 per family, or 1% of your taxable income, whichever is greater. This penalty goes up in subsequent years, being 2% of income or $325 per person in 2015, and 2.5% of income or $695 per person in 2016. After that the amount will continue to be adjusted for inflation.

Of course, you may be exempt from these penalties. For example, you’re allowed a “gap” of up to three months without coverage during the year. Or, perhaps you fall under the hardship conditions of being homeless, evicted, the victim of domestic violence, etc. Or, maybe your religion objects to insurance. This is a complex law, spanning over 1,000 pages, but it will apply to most people. This is where it gets interesting.

When you’re completing your 2014 tax return (in 2015) you’re expected to state whether, or not, you have qualifying health insurance. However, there does not appear to be anything in place that will enable to IRS to check this information. It’s difficult enough for the IRS to confirm all the standard income and expense tax form information, but the IRS does have procedures in place and “red flags” suspicious returns.

Even if everybody is completely honest and states when they do not have insurance and owe the new penalty, the IRS still has the problem of collecting the money. Unlike other debts that we discuss on 20/20 Tax Debt Help, for the Obamacare penalty, the IRS cannot issue any liens or levies. In fact, the only way they can collect the money (if somebody chooses not to pay it) is by subtracting it from any tax refund.

Now, we’re not suggesting for a moment that you should try to not get health insurance or try to avoid paying the penalty. However, it is clear that there are serious issues with Obamacare collection procedures and the burden it will place on an already overtaxed (pun intended) IRS.

The IRS “Dirty Dozen” for 2014

Another year, another Dirty Dozen from the IRS. Yes, as usual, the IRS has released its “Dirty Dozen” list of tax scams. The list doesn’t change that much each year; typically the methods become more sophisticated, but the intent is much the same. So it goes with the 2014 list, where the IRS highlights the following schemes:

  1. Topping the list is Identity Theft. Despite efforts by the IRS to reduce this, it’s still a major issue. Check out the IRS Identity Protection area of their website for ways in which you can protect yourself.
  2. Pervasive Telephone Scams are next on the list. This is where callers pretend to be from the IRS in the hope of gaining information from their victims that will allow them steal money or identities. There has been a definite increase in this area, including more legitimate-sounding callers, threats of jail, follow-up calls from people claiming to be from the police, and so on. Even if you’re aware that you really owe taxes, it does no harm to call the IRS yourself (1-800-829-1040) so that you’re sure you are talking to a real IRS representative.
  3. Most people are aware of Phishing scams, where you receive a bogus, but very real-looking, email that takes you to a fake website asking for information. Amazingly, many people still fall for these schemes. Always remember, the IRS will never initiate contact through electronic media, such as emails or text messages (or should that be “taxed messages”?).
  4. Please, do not be fooled by Offers of “Free Money” or Inflated Refunds, such as fictitious rebates, benefits, or tax credits. Scammers typically pose as tax preparers and will charge their victims for falsified returns, and you could even end up being penalized – remember, you are responsible for your return, regardless of who prepared it.
  5. Connected with the previous point is Return Preparer Fraud. Approximately 60% of taxpayers have their returns prepared by tax professionals and, since you are legally responsible for your return, you should make sure you choose a legitimate preparer that will sign the return they prepare and enter their IRS Preparer Tax Identification Number (PTIN).
  6. Are you Hiding Income Offshore? This doesn’t have to be the rich tax evader who is intentionally trying to hide assets. If you have any assets abroad then you are legally required to disclose the information, including Report of Foreign Bank and Financial Accounts filings.
  7. The Impersonation of Charitable Organizations scam crops up regularly on the list. This is perhaps one of the worst items, where, especially following a natural disaster, scammers use phone calls, emails, and false websites to solicit money from donators, or claiming to help the victims file casualty loss claims and get tax refunds. If you want to help disaster victims, be proactive, contact a recognized charity or disaster helpline, and don’t give out personal information.
  8. While it is expected that you will claim everything you’re legitimately entitled to, do not claim False Income, Expenses or Exemptions. This can result in interest, penalties, or even prosecution.
  9. The IRS Tax Code is ridiculously long and most people agree that it needs to be overhauled. However, nothing is hidden – the entire tax code is published for everybody to see, so there’s no excuse for making what the IRS refers to as Frivolous Arguments to try to evade or defeat your tax obligations. Do not try to do so and do not be fooled by people that promote such frivolous arguments.
  10. It’s actually pretty simple, do not fall victim to people who encourage you to claim deductions or credits to which you are not entitled. This includes listening to people who encourage you to claim deductions or credits to which you are not entitled, such as Falsely Claiming Zero Wages or Using False Form 1099; two scams that can get you into a great deal of trouble. These complex schemes, which include filing false documents to justify bogus claims, are pretty easy to spot. If it seems too good to be true, it probably is.
  11. While this scam won’t affect too many taxpayers, Abusive Tax Structures are a problem that the IRS is trying to tackle. These complex schemes often involve multiple offshore entities, credit cards, etc. Buying into any arrangement that promise to eliminate or substantially reduce your tax liability is probably a bad idea and could result in criminal prosecution.
  12. Often connected with abusive tax structures, the IRS is seeing an increase in the Misuse of Trusts and related questionable transactions. While there are many legitimate uses for trusts, if they are used as a means of avoiding income tax liability and hiding assets you’re probably going to end up in trouble.

As always, these are just some of the schemes in use, so please take care when dealing with tax issues and/or giving out any personal information.