Author Archives: kevinpohle

How long does the IRS have to collect a tax liability?

There is very little mercy in the tax code.  One of the provisions, however, offers the taxpayer who has had some difficult times a bit of relief.  It’s called the statute of limitations on the collection of a tax debt.  In general, the IRS has 10 years to collect a past due debt.  (Internal Revenue Code Section 6502).  After 10 years, the debt is wiped out.  There are a number of ways that the statute can be extended, though.

 

  1. The 10 year period does not start to run until you file your return and the IRS assesses the tax against you.  Not filing a return and hiding for 10 years accomplishes nothing.
  2. The IRS can extend the 10 year period by suing you in Federal court. The IRS usually won’t do this and if it’s getting close to the 10 year mark and you don’t owe millions, the IRS may let the statute expire and you’re off the hook forever.
  3. Certain actions on your part may extend the 10 year statute: Some examples are as follows:
    1. Filing an Offer in Compromise
    2. Living outside of the United States
    3. Bankruptcy
    4. Requesting a Taxpayer Assistance Order
    5. Signing a Waiver Form
    6. Requesting a Due Process Hearing

Options for taxpayers who owe taxes

If you owe taxes but can’t pay in full, there options for you. Most importantly, make sure you file your tax return and pay as much as you can. Then let the us help you choose your best option to pay. Here are some options to consider, even if you can’t pay the full amount right now:

  • Borrow the money.  If you don’t have the money to pay all your taxes now, then you may want to get a loan from a bank or other source. The interest rate may be lower than the interest and penalties the IRS charges on late taxes. You also may be able to borrow against your assets or sell them to raise cash.
  • Make an Online Payment Agreement.  If you are unable to pay in full, then consider paying over time. If you owe $50,000 or less, you can apply for an installment agreement. You may choose to make convenient monthly direct debit payments for up to 72 months. With this option, there are no checks to write or send. And you won’t miss a payment or pay late.

We can also help if your tax debt is more than $50,000 or you need more than six years to pay. In these cases, the IRS may ask for further financial information. See Form 433-A or Form 433-F, Collection Information Statement.

  • Offer in Compromise.  An Offer in Compromise is an agreement that allows you to settle your tax debt for less than the full amount. Generally, the IRS will accept an offer if it represents the most the agency can expect to collect within a reasonable time. The IRS looks at several factors to make a decision on your offer.

Figure Your Withholding.  The IRS Withholding Calculator tool can help you avoid having too much or too little income tax withheld from your pay. You can use it anytime throughout the year to stay on target.

Year Round Tax Tips

Year Round Tax Tips

With the end of the year just around the corner, I get quite a few calls from clients and potential clients about what they should do to plan for year end.  Tax planning is a year round activity, not something we try to accomplish in the last week of the year, although there are things we can do to mitigate tax before the ball drops in Times Square.

  1. Start a filing system.  If you don’t have a filing system for your tax records, you should start one. It can be as simple as saving receipts in a shoebox, which is better than nothing (not much) but it can cost you quite a bit more for a tax professional to go through and decipher. We recommend a more complex yet effective approach like creating folders or spreadsheets. It’s always a good idea to save tax-related receipts and records. Keeping good records now will save time and help you file a complete and accurate tax return next year.
  2. Make Charitable Contributions.  If you plan to give to charity, consider donating before the year ends. That way you can claim your contribution as an itemized deduction for 2016. This includes donations you charge to a credit card by Dec. 31, even if you don’t pay the bill until 2017. A gift by check also counts for 2016 as long as you mail it in December. Remember that you must give to a qualified charity to claim a tax deduction. Once again, save your receipts. You must have a written record for all donations of money in order to claim a deduction. Special rules apply to several types of property, including clothing or household items, cars and boats.

If you are age 70½ or over, the qualified charitable distribution allows you to make tax-free transfers from your IRAs to charity. You can give up to $100,000 per year from your IRA to an eligible charity, and exclude the amount from gross income. You can use the excluded amount to satisfy any required minimum distributions that you must otherwise receive from your IRAs in 2016. This benefit is available even if you do not itemize deductions. This special provision is set to expire at the end of 2016.

  1. Contribute to Retirement Accounts.  You need to contribute to your 401(k) or similar retirement plan by Dec. 31 to count for 2016. On the other hand, you have until April 15, 2017, to set up a new IRA or add money to an existing IRA and still have it count for 2016.

Not filing your taxes?

Very few people are put in jail for not filing a tax return, but it does happen occasionally.  A willful failure to file tax returns is a misdemeanor if you owe taxes.  You can be sentenced for up to a year in jail and a $25,000 fine for each year of non-filing (Internal Revenue Code 7201).  If you failure to file is deemed to be part of a scheme to evade taxes you can be charged with a felony, a more serious crime, which carries a maximum punishment of five years and more sever monetary penalty.  The felony crime requires a deceitful act beyond the non-filing, such as using a fake social security number.  Non-filers may be contacted by the IRS Criminal Investigation Division, or CID.  This does not mean that you will be prosecuted, but you still should get your past due returns prepared and filed.  In deciding whether or not to prosecute a non-filer, the CID considers many factors, such as:

  1. The number of years you haven’t filed
  2. The amount of taxes due
  3. Your occupation and education
  4. Your previous history of tax delinquencies
  5. Whether or not you are involved in a business that deals with large amounts of cash

Options for Taxpayers Who Owe Taxes

If you owe taxes but can’t pay in full, there options for you. Most importantly, make sure you file your tax return and pay as much as you can. Then let the us help you choose your best option to pay. Here are some options to consider, even if you can’t pay the full amount right now:

  • Borrow the money.  If you don’t have the money to pay all your taxes now, then you may want to get a loan from a bank or other source. The interest rate may be lower than the interest and penalties the IRS charges on late taxes. You also may be able to borrow against your assets or sell them to raise cash.
  • Make an Online Payment Agreement.  If you are unable to pay in full, then consider paying over time. If you owe $50,000 or less, you can apply for an installment agreement. You may choose to make convenient monthly direct debit payments for up to 72 months. With this option, there are no checks to write or send. And you won’t miss a payment or pay late.

We can also help if your tax debt is more than $50,000 or you need more than six years to pay. In these cases, the IRS may ask for further financial information. See Form 433-A or Form 433-F, Collection Information Statement.

  • Offer in Compromise.  An Offer in Compromise is an agreement that allows you to settle your tax debt for less than the full amount. Generally, the IRS will accept an offer if it represents the most the agency can expect to collect within a reasonable time. The IRS looks at several factors to make a decision on your offer.

Figure Your Withholding.  The IRS Withholding Calculator tool can help you avoid having too much or too little income tax withheld from your pay. You can use it anytime throughout the year to stay on target

What should you do when the IRS files a tax lien?

 

If you can’t informally convince the IRS to forgo recording a tax lien, here are some options to consider once the tax lien has been filed.

  1. Appeal the lien filing.  The IRS has 5 business days after the filing of the lien to provide written notice to the taxpayer.  The must include notice of the right to request a hearing within 30 days form the 6th day after the lien filing.  If you want he appeal, the lien will be withdrawn. Unfortunately, the lien filing will still appear on your credit report.
  1. Pay in full. If you don’t have the funds, you can always borrow from friends or relatives.  The IRS must release a lien within 30 days of full payment you can call the IRS Centralized Lien Office in order to verify that the lien has been released.
  1. Request a partial discharge. If you own several assets that are encumbered by the tax lien and want to use one to pay off the IRS, ask for a discharge from the tax lien.  The IRS will likely do this.

How long must you worry about not filing a tax return?

The tax code sets out time limits, or statutes of limitations for the IRS to pursue non-filers.

Criminal – The IRS can only bring criminal charges against a non-filer within 6 years of the due date of the return.

Civil – There is no deadline, however, on the IRS going after non-filers and imposing civil penalties, in addition to taxes owed.  This means that while you can’t be put in jail for not filing a 1988 tax return, you will forever owe the IRS a return as long as you have earned enough to have had an obligation to file.  Also, you will be fined with penalties and be required to pay interest on the unfiled returns forever.  The IRS may file an SFR (substitute for return) on your behalf based upon the data they have which is never a favorable situation for a taxpayer.

Substitute for return

Substitute for Returns

 

 

The IRS has the ability to prepare and file returns for you if you choose not to file (Internal Revenue Code 6060).  This is commonly known as an SFR.  In most cases, it is a disadvantage to have the IRS do this.  Typically, the IRS will allow you one exemption, no dependents, and only allow the standard deductions on the return they file for you.  Furthermore, the IRS will calculate your tax liability for you, usually from your W-2s and 1099s.  The IRS may also impute income to you based upon tabled furnished by the Bureau of Labor Statistics showing the income necessary to sustain the lifestyle in your community.  This can result in a much higher tax bill than you would have had if you or a professional prepared your return.

If the IRS prepares an SFR, it will mail it to your last known address asking you to sign it and return it.  It may not be in your best interest to sign such a return and if this does happen to you, you should contact a tax professional immediately.

Non-Filers, Part 2

 

Very few people are put in jail for not filing a tax return, but it does happen occasionally.  A willful failure to file tax returns is a misdemeanor if you owe taxes.  You can be sentenced for up to a year in jail and a $25,000 fine for each year of non-filing (Internal Revenue Code 7201).  If you failure to file is deemed to be part of a scheme to evade taxes you can be charged with a felony, a more serious crime, which carries a maximum punishment of five years and more sever monetary penalty.  The felony crime requires a deceitful act beyond the non-filing, such as using a fake social security number.  Non-filers may be contacted by the IRS Criminal Investigation Division, or CID.  This does not mean that you will be prosecuted, but you still should get your past due returns prepared and filed.  In deciding whether or not to prosecute a non-filer, the CID considers many factors, such as:

  1. The number of years you haven’t filed
  2. The amount of taxes due
  3. Your occupation and education
  4. Your previous history of tax delinquencies
  5. Whether or not you are involved in a business that deals with large amounts of cash

Taxpayers – Non Filers

 

The IRS looks for nonfilers through its computerized Information Returns Program (IRP).  This tremendously effective operation matches information documents, such as W-2s and 1099s form payers against the tax returns you have filed.  If the computer search fails to find a return, the IRS initiates a taxpayer Delinquency Investigation, or a TDI.  A TDI is an IRS search for a taxpayer to discover why he or she did not file a tax return.  TDS’ usually begin with computer generated notices.  If you don’t respond to the notices, your case is normally turned over to a Taxpayer Service Representative for a telephone contact or more letters. Failure to respond will lead to a contact to A Revenue Officer at your local IRS office.  This means that the IRS is serious and you should contact a professional immediately.