Not sure how to handle your IRS or OTC Tax Liability Problem? Get the answers you need to protect your rights!
Attorney Travis Watkins has compiled a list of the most frequently asked questions in response to the overwhelming number of people who are facing tax liens, wage garnishment and other penalties for unpaid taxes. If you are dealing with an insurmountable tax debt, read on to learn how to protect your legal rights.
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Top Ten Questions Taxpayers Ask When Dealing With An IRS Problem
Yes. Dealing with the IRS can be complex, and most taxpayers are greatly outmatched when it comes to knowing IRS rules and procedure. Our office has other tax professionals (CPA's and Enrolled Agents) who can assist as well. Tax relief is not something you should try to pursue on your own, as your financial and emotional future is at stake. There is also a potential for IRS overreaching when it comes to sharing information with the IRS. The IRS doesn't tell taxpayers that anything they say can and will be used to collect a debt. They also don't tell them that they have the right to hire an attorney. Our clients sign an IRS Power of Attorney which allows us to take over communications and deal with IRS officials, so our clients don't have to. An experienced tax lawyer can help you achieve your goals for yourself and your family.
It depends. The IRS' settlement program or "Offer in Compromise" is determined by whether or not the IRS can collect the full amount of liability (including interest and penalties) within its deadlines. As each taxpayer's financial situation is different, each settlement is different. The IRS is the final decision maker of an individual's eligibility for this program. The average accepted Offer in Compromise in our office is about 10-15% of what the taxpayer owed. There are other IRS programs that may also achieve your goals if you are ineligible for the Offer in Compromise program.
Compliance and payment are a lifetime commitment. That is why we help our clients from year to year with their taxes. Currently, the IRS is taking from 6-9 months to process Offers in Compromise alone. Meanwhile, new collection attempts (levy attempts, for instance) are stayed/stopped. Most cases that don't require appeals are over in 12-18 months. You will need to stay in filing and paying compliance to make sure that all the relief you have accomplished stays in force.
Many factors are at issue in the fee, including our inability to accept other clients and other employment and in consideration of our power of attorney staying in full force and effect during representation. Most importantly, we will quote you a fixed rate, ie there are no on-going monthly bills in the great majority of cases. A liability of $50,000 would be about $5,000 in fees. Payment plans and financing are available for qualified clients.
The inability to pay your tax debt is not grounds for jail time. The IRS cannot collect income tax if you're incarcerated so it is not in their best interest to pursue you in this manner. You can, however, go to jail for cheating on your taxes or fraud. Timely filing of your returns, even if there is a balance will prevent the hefty failure to file penalty.
Yes. A casino may require your Social Security number so it can file an IRS Form W2-G to report your winnings. Table games are not required to report the winnings on the W2-G, but not exempt from paying taxes. Even if you do not win above the threshold to fill out the W2-G you are still legally obligated to report your monetary gain to the IRS. You may write off losses up to the amount of your winnings, if you have sufficient back-up documentation to support these losses.
Senate Bill 1040 requires Oklahoma state tax compliance before any professional can renew their license. That means medical doctors, physician assistants, chiropractors, commercial drivers, cosmetologists, dentists, embalmers/funeral workers, engineers, insurance agents, optometrists, pharmacists, real estate agents, security brokers and agents, pathologists, veterinarians, building inspectors, electricians, plumbers and emergency medical technicians (the list goes on and on) must be compliant with taxes in order to maintain a license in Oklahoma. Licenses will not be renewed until compliance and a resolution is established. There is positive news. If you have a license and a tax problem, taxation officials are not looking to take your livelihood, since you would not be able to pay them if that occurred. Hire a local tax attorney to work out an acceptable solution that gets your license renewed and your taxes paid.
The IRS is a powerful government agency that will utilize every tactic to collect the tax debt that is owed. If you owe the IRS taxes and are not compliant, the IRS will enforce collection in various forms: levies, seizures and public sale. There are little restrictions on the IRS' ability to initiate seizure. State homestead laws do not shelter your residence. Luckily, the seizure process is a last resort with the IRS and it takes a long time. Start working out a plan with the IRS now before the process proceeds further.
If the IRS has issued a levy on your bank account, your funds will be frozen and you will not be able to withdraw. Your first step should be to contact an attorney. To get this released as soon as possible, you must present an acceptable alternative to the IRS within 20 days to negotiate the release.
The IRS works through its local field agents and officers. Your best representation will come from tax professionals that deal with these local representatives every day. Our firm also offers financing for qualified clients.
The attorneys and licensed tax professionals at Travis W. Watkins Tax Resolution and Accounting Firm provide troubled taxpayers with a customized, actionable plan to file old returns, negotiate with the IRS and stop immediate threats to their livelihood, so they can get a good night's sleep again. Call 800-721-7054 for a FREE 30 minute consultation or receive our FREE download of Travis Watkins' short book, The Ultimate Survival Guide for IRS Problems.
With tax season upon us, how can I avoid problems?
With the new year upon us, it is time once again to gear up for tax season. Beginning in January, the IRS will be accepting electronically filed and paper filed tax returns. The first date for processing of these returns is January 19, 2016. It is crucial for taxpayers to make every effort to avoid potential issues relating to the filing of their tax returns.
4 Tips to Avoid Problems With the IRS This Tax Season
What can you do to stay out of trouble this tax season? The following are four helpful tips:
- Pay close attention to important dates. Electronic returns can be filed beginning on January 19, 2016. Further, the deadline for filing a return is Monday, April 18, 2016. While the usual tax deadline falls on April 15, this year the 15 occurs on Emancipation Day, a recognized holiday in Washington D.C. Because of this, the tax filing deadline has been extended. Similarly, if you are submitting a return in Maine or Massachusetts, the deadline is actually Tuesday, April 19 because April 18 is Patriots’ Day.
- Collect all of your year-end statements. Make sure you have all statements on hand before you file your return. Examples of year-end statements to have readily available include Forms W-2 from your employers, Forms 1099 from banks and other parties, and Form 1095-A for those who are claiming the premium tax credit.
- File your return electronically. An electronic return and the choice to have your return directly deposited into your bank account is the fastest and safest way to file your return and obtain your refund. If your return is filed properly and electronically, you may receive your return in less than three weeks
- If you have any questions relating to your return, seek assistance. This help can come from your tax preparer, attorney, or through your own research. A good resource that may be available to answer your questions is to visit http://www.irs.gov/.
By following these tips, hopefully your likelihood of facing issues dealing with the IRS will be diminished.
When dealing with the IRS over a potential tax problem, it is crucial to obtain assistance from a legal professional who can protect your legal rights. We encourage you to check out our client testimonials today for more information.
Can the IRS take my passport if I have unpaid tax liabilities?
If you owe taxes to the IRS, the agency has many ways of making your life miserable. This December, President Obama signed a bill that gives the IRS a new tool in its arsenal. The five year infrastructure spending bill, specifically H.R. 22: Fixing America’s Surface Transportation Act, also known as the Fast Act, adds a new section to the Internal Revenue Code. This new section is called “Revocation or Denial of Passport in Case of Certain Tax Delinquencies.” As a result, the IRS can potentially take your passport if you have unpaid taxes.
An Overview of the New Code Section Giving the IRS Power Relating to Your Passport
Back in 2012, the Government Accountability Office first reported that there was a significant potential upside for the IRS if they used the issuance of passports as a means to collect taxes. It did not pass as a bill at the time; however, it passed as part of the massive highway funding bill in this most recent effort. According to the law, the following is now true:
- The U.S. State Department may now revoke, deny, or limit passports for anyone who the IRS certifies as having a seriously delinquent tax debt.
- A seriously delinquent tax debt means a debt in excess of $50,000.
- This could mean that no new passports will be issued to those with seriously delinquent tax debt. It could also mean that no passport renewals will be performed for those with seriously delinquent tax debt. Further, it could also mean that the State Department may rescind existing passports for those with this level of tax debt.
- The list of affected taxpayers will be compiled by the IRS.
- The $50,000 minimum threshold amount may include penalties and interest and applies only to unpaid federal taxes, not state taxes.
- The State Department will take action when told to do so by the IRS.
- Taxpayers who are contesting a proposed tax liability administratively with the IRS or in court should not be a part of the list compiled by the IRS, as these amounts are not yet a tax debt.
- There is also an administrative exception. The State Department can issue a passport in an emergency for humanitarian reasons.
- Taxpayers who are paying their debt in a timely manner, such as under an installment agreement, should not face any issues with their passports.
- The State Department’s new powers relating to passports may apply as soon as the IRS files a notice of lien.
Unfortunately, with the bill being so new, there is little in the way of administrative guidance to offer insight as to how this new section of the Code will be applied and used. In addition, it is also not yet known how the exception to the rule will be carried out. We also do not know how long it would take to be granted this reprieve.
While the $50,000 minimum may at first seem high, it is important to note that statistically, this amount is not high, especially when interest and penalties begin to accrue. The IRS files tax liens on a regular basis so it is likely that the power to interfere with your passport will kick in quickly if you owe a debt.
In addition, some people mistakenly believe that since they do not travel internationally, their passport is not necessary and therefore the IRS’s powers relating to this form of identification is irrelevant. It is important to note, however, that passports are used for many different purposes other than international travel. Some people may also soon find that passports are required even for domestic travel.
Will I be in trouble with the IRS if I don’t file a Form 5471?
In today’s global society, many U.S. taxpayers will find themselves interacting with or owning interest in foreign assets and foreign companies. It is crucial that these taxpayers comply with their U.S. tax obligations in order to avoid audits, penalties, fines, and even potential criminal consequences. If you are a U.S. taxpayer and you are required to file Form 5471, the Information Return of U.S. Persons With Respect to Certain Foreign Corporations, you may find yourself facing tax problems if you fail to fulfill this obligation. In addition, it is crucial to note that the IRS has no time limitation on its ability to pursue an audit if you do not file the form despite being required to do so.
Taxpayers Required to File Form 5471
Whether or not you may face IRS tax problems with regard to Form 5471 depends upon whether you are required to file. The form is applicable for taxpayers who have a certain level of control in certain foreign corporations. There are many filing requirements relating to the form. If it is required, it must be filed as an attachment to the taxpayer’s federal income tax return.
What categories of taxpayers may need to file Form 5471? The following is an overview:
- U.S. citizens who are officers, directors, or shareholders in certain foreign corporations
- U.S. resident aliens who are officers, directors, or shareholders in certain foreign corporations
- U.S. domestic corporations
- U.S. domestic partnerships
- U.S. domestic trusts
Since the potential penalties for failing to file the form are often steep, it is critical that you fulfill your tax obligations with regard to your interests in foreign assets. Fortunately, you do not have to be an expert in the U.S. tax code to ensure that you stay out of trouble or to deal with the IRS if a problem should arise. We are here to provide the guidance you require. We encourage you to check out our client testimonials today for more information.
I hold an interest in a foreign company. Is it true that the IRS can audit me at any time?
When it comes to assets held offshore and U.S. tax reporting requirements, the stakes are often high. Improperly completing the required tax forms, failing to file, or failing to pay necessary taxes often result in steep fees and penalties. Most taxpayers can at least look to the statute of limitations on an IRS audit to provide them with some amount of peace of mind as time passes. In some rare cases, however, the IRS may have an unlimited amount of time in which to begin an audit.
10 Facts About Audit Time Limitations and Interest in Foreign Corporations
U.S. shareholders with an interest in foreign corporations should be especially diligent when it comes to their tax obligations. Failing to do so can expose the taxpayer to a potential audit for many years to come. The following are ten tips that provide an overview of this issue:
- Typically, the IRS has three years in which to pursue an audit.
- In some cases, such as if you do not handle your offshore account reporting, the IRS may have six years in which to pursue an audit.
- Having a company that holds a foreign bank account is even more risky when it comes to an audit.
- U.S. shareholders who have more than 50% of the vote or value of a foreign corporation have an interest in what is known as a controlled foreign corporation.
- U.S. shareholders are those who own 10% or more of the foreign corporation’s total voting power.
- These shareholders are required to file an annual IRS Form 5471, an Information Return of U.S. Persons With Respect to Certain Foreign Corporations. U.S. shareholders who acquire stock that results in 10% ownership in any foreign company also must file this form, regardless of whether the company is a controlled foreign corporation.
- If the return is not filed, penalties accrue. Typically, these penalties equal $10,000 per form.
- Additional penalties apply to each Form 5471 filed late and for each form filed that is incomplete or inaccurate.
- The penalties can apply even if no tax is due on the return.
- During the time period in which a Form 5471 is not filed, the shareholder’s entire tax return remains open for audit indefinitely.
If you are facing a tax problem as a result of your foreign assets or accounts, it is crucial to seek guidance from a knowledgeable tax professional. We are here to provide the assistance you need. We encourage you to learn more about the experiences of our past clients by checking out our client testimonials today.
What are some of the potential penalties for failing to report an offshore account?
In today’s global society, many people have assets and accounts located in places other than the U.S. Unfortunately, some taxpayers in the past would use offshore accounts as a way to hide assets and avoid paying U.S. taxes. The IRS therefore makes efforts to seek out these unreported assets. If discovered, taxpayers face significant penalties and in some cases, jail time.
5 Potential Penalties for Failing to Report Offshore Accounts
What are some of the potential penalties relating to offshore accounts? The following are five examples:
- Penalties for failing to file a Report of Foreign Bank and Financial Accounts with the IRS. All U.S. citizens and residents must annually report their direct or indirect financial interest in a financial account that is maintained with a financial institution located in a foreign country. This rule kicks in if the account has more than $10,000 in it at any time throughout the year. The civil penalty may be the greater of $100,000 or 50% of the total balance of the account per violation. If the violation was not willful but lacked reasonable cause, the penalty is $10,000 per violation.
- Penalties for failing to file Form 8938. This form reports a taxpayer’s interest in foreign financial accounts, securities, and interests in foreign entities. Failing to file this information return results in a $10,000 penalty for each violation. In addition, $10,000 is added for each month the failure continues, beginning 90 days after the taxpayer is notified of the delinquency. There is a maximum of $50,000 per return, however.
- Penalties for failing to file Form 3250, the Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts. The penalty for failing to file each information return is the greater of $10,000 or 35% of the gross reportable amount, except for returns reporting gifts, where the penalty is 5% of the gift per month.
- Penalties for fraud due to a fraudulent underpayment of tax or failure to file a tax return. Taxpayers who underpay or don’t pay taxes can be fined 75% of the unpaid tax.
- Penalties for failing to file a tax return. This penalty is generally calculated at 5% for each month during which the failure continues, plus another 5% of the balance due.
Fortunately, there are options for resolving your tax problems even if you are not complying with U.S. tax law with regard to your offshore accounts. We can help you find a successful solution. We encourage you to read our client testimonials today to learn more.
I have not been reporting my offshore account to the IRS. Should I use the Offshore Voluntary Disclosure Program?
If you have assets in foreign countries, you have certain reporting obligations with regard to the IRS. Unfortunately, some people with offshore accounts fail to report or pay taxes on assets held in these offshore accounts. The IRS has indicated that it intends to continue seeking out these non-compliant taxpayers. For those willing to come forward on their own, the Offshore Voluntary Disclosure Program may be a good option.
6 Reasons to Consider the Offshore Voluntary Disclosure Program
The Offshore Voluntary Disclosure Program is a way for taxpayers with offshore accounts to bring themselves into compliance with the IRS and the U.S. tax laws. Reasons to consider taking advantage of this program include the following:
- Disclosing will allow you to become compliant.
- Disclosing will allow you to avoid substantial civil penalties.
- Disclosing will generally eliminate the risk of criminal prosecution for all issues relating to tax noncompliance and failing to file reports with the IRS.
- Disclosing provides you with an opportunity to calculate the total cost of resolving all offshore tax issues.
- The IRS has indicated its intent to continue seeking out and prosecuting people with offshore accounts who are not in compliance with U.S. tax laws.
- Information about offshore accounts is increasingly becoming available to the IRS due to tax treaties, submissions from whistleblowers, and other sources. This is making it increasingly difficult to avoid detection by the IRS.
Of course, every situation is unique, so deciding whether to participate in this program is best done with the assistance of a knowledgeable legal professional. We can help. We encourage you to learn more about the experiences of our past clients by checking out our client testimonials today.
What do I have to prove if the IRS decides to question my business tax filings?
If you are one of the unlucky business owners selected for an audit or examination by the IRS, it is important that you be able to support the claims you have made in your tax filings. If you are unable to do so, you may be subject to various fees and penalties. Taxpayers are required to meet a certain burden of proof when it comes to the entries, deductions, and statements made on tax filings or risk having their previous returns overturned, amended, or rejected.
3 Documents That Substantiate Claims Made on a Tax Return
In order to legally make deductions on your tax return, you must be able to prove certain elements of your expenses. Most taxpayers meet this burden of proof by keeping the information and receipts relating to the expenses. Good recordkeeping requires that business owners keep various forms of documentation in order to meet this burden of proof. The following are three examples of documentation that serves as evidence of your expenses:
- Canceled checks
If you are reporting travel, entertainment, gifts, or auto expenses, additional evidence is required.
Meeting your burden of proof typically becomes an issue when you or your business is selected for an audit. If you are chosen to undergo this process, it is crucial to have an experienced attorney in your corner. Your lawyer will help you understand what the IRS is looking for through the audit process as well as guide you through the process in order to maximize your chances for a successful outcome. In addition, arming yourself with knowledge about the audit process can help get you started. We encourage you to check out our free guide, The Ultimate Survival Guide for IRS Problems, for more information.
Why do I need to keep certain business records for tax purposes?
Most business owners understand that they need to keep certain records. However, not all business owners understand the true importance of good recordkeeping. If the IRS comes calling, good recordkeeping practices may work heavily in your favor.
7 Reasons to Keep Good Records for Your Business
Why is it so important to keep good records for your business? The following are seven reasons:
- To monitor the progress of your business. While this may not be tax related, good recordkeeping can help you see whether your business is improving or whether certain changes need to be made.
- To be able to prepare your financial statements. Accurate financial statements pertaining to your losses and profits are crucial for dealing with creditors, managing your business, and completing tax returns.
- To help you identify the sources of your income. While this is important from a business management perspective, it is also important from a tax perspective. Business owners must separate business from nonbusiness receipts and taxable income from nontaxable income.
- To keep track of your deductible expenses. Tax deductions are crucial for any business owner. If you do not track your expenses in an efficient and reliable manner, you may forget or report them inaccurately.
- To keep track of the basis in your property. Basis is the amount of your investment in property for tax purposes. For example, your basis in real estate is the price you paid for the property. The basis amount is crucial for calculating the gain or loss when you sell, exchange, or otherwise dispose of the property. It is also necessary for calculating deductions for depreciation, amortization, depletion, and casualty losses.
- To prepare your tax return. Without records that show your income, expenses, and credits, you are unlikely to be able to prepare an accurate tax return.
- To support the items that you reported on your previous tax returns. If your business records are not available for inspection by the IRS, you may be in trouble if you are subject to an examination or audit because you will have difficulty substantiating your claims.
If you are facing an IRS tax problem and do not have good recordkeeping practices in place, it is important to seek help. To get started learning more, we encourage you to check out our free guide, The Ultimate Survival Guide for IRS Problems.
How do I know how much to pay the IRS during the year to avoid underpayment penalties?
As U.S. taxpayers, we are required to pay a certain amount to the IRS during the course of the tax year. Failing to do so can lead to significant underpayment penalties. While these penalties can hit anyone at any time, there are certain situations where underpayment penalties are especially common. For example, if you have a substantial increase in your income due to cashing in an investment, you may have increased your income without increasing your withholding or making estimated tax payments. Similarly, if you retire and your payroll income is replaced by a pension and Social Security income, you may not have adequate withholdings in place and thus may face an underpayment penalty.
Two Safe Harbor Methods to Avoid an IRS Underpayment Penalty
In order to avoid an unexpected and unpleasant surprise at tax time, it is important to pay at least a minimum safe harbor amount during the course of the year. The following are two safe harbor methods you can utilize to avoid an underpayment penalty:
- Choose a safe harbor amount that is calculated based on the tax you owe for the current year. As long as your payments to the IRS are equal to or exceed 90% of your current year’s tax liability, you will meet the safe harbor amount and avoid an underpayment penalty.
- Choose a safe harbor amount that is calculated based on the taxes you owed in the immediately-preceding tax year. As long as your current year’s tax payments are equal to or exceed 100% of the amount of the prior year’s tax, you will meet the safe harbor amount and avoid an underpayment penalty.
If you are already facing an underpayment penalty or other problem with the IRS, it is not too late to seek assistance. Your first step should be to educate yourself about tax problems and the process for finding solutions. To get started learning more, we encourage you to check out our free guide, The Ultimate Guide for IRS Problems.
The IRS is saying that my ex-husband and I have joint and several liability for an old tax return. What does that mean?
When you were married, you may have opted to file joint tax returns with your former spouse. Later, the IRS may contact you if there are issues with the return due to unpaid taxes, underpaid taxes, improper deductions or credit, underreporting of income, or some other issue with the return. When this happens, both spouses are said to be jointly and severally liable for the debt.
Facts About Joint and Several Liability for Tax Debt
What does joint and several liability for tax debt mean for a married couple or a formerly married couple? The following are five facts that provide a valuable explanation:
- If you filed the tax return in question jointly, both of you are jointly and severally liable for the tax, as well as any additions to the tax, interest, or penalties that arise from the joint return.
- Even if you later divorce, joint and several liability remains.
- Joint and several liability means that each spouse is liable for the entire amount due to the IRS.
- Joint and several liability exists even if one spouse earned all the income or only one spouse claimed the improper deductions or credits leading to the unpaid tax debt.
- Even if a divorce decree states that a former spouse is responsible for any tax debt from previously filed joint returns, joint and several liability remains.
The good news, however, is that you may be entitled to relief from the liability if you are an innocent spouse, if you can obtain a Separation of Liability Relief, or if you can obtain Equitable Relief. We are here to help you do just that. To learn more about tax problems and potential solutions, we encourage you to check out our free guide, The Ultimate Survival Guide for IRS Problems, today.
Where do I submit Form 8857 in order to obtain innocent spouse relief from tax debt?
If you are an innocent spouse and the Internal Revenue Service (IRS) is pursuing you for unpaid tax debts, you may be eligible for relief. Requesting this relief requires the completion and submission of Form 8857, Request for Innocent Spouse Relief. This form must be submitted to the IRS at the proper location and in the proper manner in order for it to be reviewed favorably.
Three Methods for Submitting a Request for Innocent Spouse Relief to the IRS
How can you submit your Request for Innocent Spouse Relief? The following is an overview:
- If you are sending in your request through the U.S. Postal Service, Form 8857 should be mailed to the Internal Revenue Service at P.O. Box 120053 in Covington, Kentucky, zip code 41012.
- Alternatively, you may wish to use a private delivery service to submit Form 8857 to the IRS. If doing so, the form should be taken to the Internal Revenue Service, 201 W. River Center Boulevard, Stop 840F, in Covington, Kentucky, zip code 41011.
- Another option is to submit your request through fax. When submitting a request via fax, Form 8857 and any attachments should be sent to the IRS at 855-233-8558.
Regardless of which method you choose, your full name and social security number should be written on any attachments to your form. Understanding where not to send the form is perhaps equally as important as understanding the acceptable means of delivering it to the IRS. Taxpayers should be aware that Form 8857 should never be filed with a tax return or with the Tax Court.
Understanding how to go about obtaining an alternative solution to a tax problem is not an easy process unless you have experience working with the IRS. Fortunately, we are here to help guide you through the process. You can learn more about dealing with tax debt issues by reviewing our free guide, The Ultimate Guide for IRS Problems, today.
When should I file Form 8857 if I am seeking innocent spouse relief from the IRS?
If the Internal Revenue Service (IRS) comes after you for unpaid taxes, one form of an alternative solution to your problem is to seek relief based on a finding that you are an innocent spouse. To take advantage of this solution, you must file a Request for Innocent Spouse Relief, or Form 8857, with the IRS. This Form requires you to provide the IRS with certain applicable information in order to allow the service to make its determination.
Understanding When to File a Request for Innocent Spouse Relief
A crucial aspect of requesting innocent spouse relief is to ensure that your request is filed with the IRS at the appropriate time. Generally, the following are helpful guidelines regarding when to file Form 8857:
- As soon as you become aware of a tax liability for which you believe only your spouse should be responsible. Typically, you become aware of such liability when the IRS is examining your tax return and proposing to increase your tax liability. Another way in which you may become aware of the liability is when the IRS sends you written notice.
- No later than two years after the IRS first attempts to collect the tax from you.
- If you are requesting equitable relief, you may qualify for an extension of this time period during which you can file a request for innocent spouse relief.
- If you are seeking relief from a balance that is due, you must file your request within the time period the IRS has to collect the tax. Typically, this is 10 years from the date the tax liability was assessed.
- If you are seeking a credit or refund, you must file your request within three years after the date the original return was filed or within two years after the date the tax was paid, whichever is later.
- If you are seeking both relief from a balance due and a credit or refund, the time period for a credit or refund will apply to any payments that you made. The time period for collection of a balance due amount applies to any unpaid liability.
- If you are requesting an exception for relief based on community property laws, you must file your request no later than six months before the expiration of the period of limitations for assessment against your spouse for the tax year for which you are requesting relief. Generally, the period of limitations is three years.
Dealing with tax issues is never an easy process. Arming yourself with knowledge can help you obtain a solution that works for you. To get started learning more about tax issues, we encourage you to check out our free guide, The Ultimate Guide for IRS Problems.
Does the IRS need to know about my current financial status in order to consider my request for innocent spouse relief?
When the IRS says that a jointly-filed tax return was erroneous or understated the tax owed, both you and your spouse may be responsible. The IRS can hold each of you liable for the unpaid tax unless you can demonstrate that you are an innocent spouse. To do so, you must complete and file Form 8857, Request for Innocent Spouse Relief.
What You Need to Include About Your Financial Situation When Requesting Innocent Spouse Relief
When completing Form 8857, the IRS will ask you to provide certain information about your current financial information. This information includes the following:
- A description of your property. Real estate, cars, stocks, and bonds are all examples of property that must be listed for the IRS. You must provide the fair market value of each item, as well as the balance of any outstanding loans used to acquire those items. Fair market value is determined as outlined by the IRS in the instructions for the form.
- The amount of cash that you have on hand and in your bank accounts.
- The number of adults and children currently in your household.
- Your monthly income, including any gifts received by friends or family, your wages, pensions, unemployment income, social security benefits, government assistance, alimony, child support, self-employment income, rental income, interest and dividends, and all other income. Examples of “other income” may include disability benefits and gambling winnings.
- Your monthly expenses, including expenses that are paid with income received from gifts. Categories of expenses that must be listed include food and personal care, transportation, housing and utilities, medical expenses, and other costs. These additional expenses may include child and dependent care, caregiver expenses, income tax withholdings, estimated tax payments, retirement contributions, union dues, unpaid state taxes, student loans, and court ordered payments.
The IRS needs this information because your current financial situation is considered when evaluating your request for innocent spouse relief.
If you owe taxes to the IRS, innocent spouse relief is just one potential solution to your problem. To get started learning more about tax issues, we encourage you to check out our free guide, The Ultimate Guide for IRS Problems.
How do I complete Form 656, the application for an Offer in Compromise to settle my IRS tax debt?
As part of the process of applying for an Offer in Compromise, all taxpayers must complete Form 656. You Should be prepared in advance to provide the necessary information and supporting documents when seeking a compromise from the IRS. An Offer in Compromise is an opportunity for an alternative solution to an outstanding tax debt that you are unable to pay in full. As such, it is crucial that Form 656 be completed as thoroughly as possible.
8 Pieces of Information to Include on an Application for an Offer in Compromise
When completing Form 656, what information is required? The following is an overview:
- Your contact information. This includes such information as your name, address, and Social Security number.
- Tax information. You will need to include the specific tax liabilities for which you are seeking the compromise. It is important to include the relevant tax years and tax type.
- A reason. Your reason for requesting the compromise, along with a more detailed explanation, will be required. For example, you may select “Doubt as to Collectability” or “Exceptional Circumstances.”
- Low income qualification. If you are unable to pay the application fee or the initial offer payment, indicate that you qualify for Low Income Certification.
- Payment terms. You must specify the terms under which you will complete the payment called for by the Offer in Compromise.
- An initial deposit. You must make an initial deposit along with the offer. Further, if you want your payment to be applied to a specific tax year or a specific tax debt, provide this information.
- Source of funds. How will you pay the offer amount? For example, indicate whether you will be borrowing money from friends or family, taking out a loan, or selling assets.
- Third party. Include the contact information for your third party designee, if you wish to name another individual to discuss the Offer in Compromise with the IRS.
To learn more about how to handle a tax problem, we encourage you to check out our free guide, The Ultimate Guide for IRS Problems.
I submitted an Offer in Compromise for my tax debt. Does that mean I can I hold off on paying future taxes?
For taxpayers who are in debt to the IRS and are unable to pay in full, an Offer in Compromise may be a viable solution. The Offer in Compromise is an agreement between the taxpayer and IRS to settle the debt for less than what is owed. It allows the taxpayer to have a fresh start and move forward from the burden of their debt, while allowing the IRS to collect the maximum amount possible. When an Offer in Compromise is accepted, it is important not to do anything to jeopardize it.
4 Important Tips About an Offer in Compromise
Unfortunately, some taxpayers do not realize that their obligations to the IRS with regard to taxes continue even after an Offer in Compromise is accepted. Not honoring those other obligations can put the Offer itself in jeopardy. The following is an overview of important facts to remember:
- When submitting your Offer in Compromise, complete all required forms and send in all supporting documentation. This includes the application fee and the initial offer payment. If you cannot make these payments, determine whether you meet the low income certification guidelines.
- If your offer is accepted, continue to file and pay your tax obligations as they accrue.
- Failing to pay the tax obligations that become due during the five years after obtaining an accepted Offer in Compromise may force the IRS to default your Offer.
- If your Offer in Compromise is deemed to have been defaulted, all of your compromised tax debts, including penalties and interest, will be reinstated.
An Offer in Compromise is an important alternative solution to unpaid tax debt for many taxpayers. To get started learning more about your options when dealing with a tax problem, we encourage you to check out our free guide, The Ultimate Guide for IRS Problems.
What factors should I include when requesting a transfer of my IRS audit location?
If you were selected for an audit by the Internal Revenue Service, you may wish to request a change in the time or place of the audit. There are typically two types of audits. If the audit is a field audit, the auditor will initially want to conduct it at your place of business. If the audit is a correspondence audit, the auditor will want to complete the audit by mail, even if you request it be transferred to a local office. Fortunately, however, taxpayers are entitled to request a change in the location of the audit regardless.
Factors to Include in Your Request to Transfer Your Audit Location
When making your request for a transfer, it is important to include the following information:
- The location of your current place of residence,
- The location of your current principal place of business,
- The location where your books, records, and source of documents are maintained,
- The location where you feel the IRS can perform the audit most efficiently,
- The resources available to the IRS at the location where you would like the audit to occur,
- Any other factors that indicate conducting the audit at a particular location would create an undue hardship on you as the taxpayer.
Ultimately, the decision as to whether to grant your request for a change in the audit location will be made by an IRS employee.
Taxpayers selected for an audit should seek guidance from an experienced professional. We can help. This is true even if the audit has already been completed and you are not happy with the results. In these cases, you may wish to consider an appeal. To get started learning more, we encourage you to check out our free guide, The Ultimate Guide for IRS Problems.
How will I know if the IRS is pursuing payment of tax debt through my 401(k)?
If the IRS is coming after you for an unpaid tax debt, the most important step you can take is to contact an experienced tax attorney. Attempting to resolve your tax issues without legal guidance puts you at a substantial disadvantage. The IRS has significant resources at its disposal and may pursue all of your assets to collect on the unpaid debt, including your 401(k).
IRS Collection Efforts and Your 401(k)
In order to prepare yourself for IRS collection action against your retirement assets, it is important to understand the following:
- Before the IRS can place a tax lien or levy on your account, you will be given the option of paying your tax debt.
- The IRS will likely place a federal tax lien on your 401(k) before taking additional action. The federal tax lien serves to put other parties on notice that you owe the IRS money.
- The IRS will next issue a notice of intent to levy.
- After the notice of intent to levy is issued, the IRS will issue a notice of levy on the 401(k) plan.
- If the IRS places a notice of intent to levy on your account, you may negotiate a payment arrangement. This will stop the collection action and prevent the account from being levied.
- If you fail to make the required payments to the IRS under the payment arrangement, the IRS may then resume collection action on the 401(k).
Finding the best possible solution to your tax problems requires an understanding of the how the IRS debt collection process works. To learn more, we encourage you to check out our free guide, The Ultimate Survival Guide for IRS Problems.
What types of notices might I receive from the Automated Collection System when I owe money to the IRS?
Knowing what you are dealing with and who you are receiving contact from is crucial when the IRS contacts you about an unpaid tax debt. Many taxpayers feel overwhelmed and confused about what is happening when they receive such a contact. Generally, it depends on the type of notice that you receive as to what potential actions you may be facing and who you are receiving contact from.
4 Types of Notices You May Receive From the IRS
You may receive any of the following notices from the IRS with regard to unpaid tax debt:
- Reminder—You Have a Balance Due, or CP 501
- Important—Immediate Action is Required, or CP 503
- Urgent—We Intend to Levy on Certain Assets. Please Respond Now, or CP 504
- Final Notice of Intent to Levy and Notice of Your Right to a Hearing, or CP 90
The Reminder, Important, and Urgent notices are all sent by a computer through the Automated Collection Service. As a result, there is no human being involved. The IRS is reviewing your debt, but there is not a single individual assigned to your matter. This may change by the time you receive the Final Notice. At this point, the notice can be sent either by the Automated Collection Service or by a local IRS Revenue Officer. After receiving one of these notices, you are instructed to contact the Automated Collection Service for more information.
Arming yourself with knowledge is the first step towards resolving your unpaid tax debt. To learn more, we encourage you to check out our free guide, The Ultimate Survival Guide for IRS Problems.
What is the difference between contact from an IRS Automated Collection System and an IRS Revenue Officer?
If you owe unpaid taxes to the Internal Revenue Service, you can expect to be contacted at some point. This contact can come in various forms. Some taxpayers, for example, may be contacted by the Automated Collection Service. Other taxpayers may be contacted by an IRS Revenue Officer. The experience that you have moving forward will depend on which party contacts you.
Differences Between the Automated Collection Service and an IRS Revenue Officer
What are some of the differences between contact from the Automated Collection Service and an IRS Revenue Officer? Here are just a few:
- When dealing with the Automated Collection Service, you will likely never deal with the same person twice. When dealing with a Revenue Officer, however, you will be working with the same individual throughout the process.
- With the Automated Collection Service, you will likely have to explain your story, starting from the beginning, every time you call. A Revenue Officer, however, will already be familiar with the facts and circumstances surrounding your case.
- A Revenue Officer may make unannounced visits to your home or office. This is because the Revenue Officer assigned to your case is usually stationed out of an IRS office that is within driving distance from your home or place of business. A representative form the Automated Collection Service is not going to visit your home or office.
- Revenue Officers keep regular hours, so you will likely have to meet and talk during normal Monday through Friday business hours. The Automated Collection Service, however, is available after hours.
- You have no control over which Revenue Officer gets assigned to your case. If the person is unreasonable or unpleasant to deal with, there is little you can do about it. When dealing with the Automated Collection Service, however, you can work with a different individual either by asking, or by hanging up and calling at a different time.
Dealing with a tax problem is rarely a pleasant experience. Fortunately, arming yourself with knowledge about the process can help you protect your rights. To get started learning more, we encourage you to check out our free guide, The Ultimate Survival Guide for IRS Problems.